Why Diesel Costs Are Surging Even as Oil Supplies Recover

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Why Diesel Costs Are Surging Even as Oil Supplies Recover

Global oil supplies are beginning to recover from months of disruption, but the cost of moving product remains under pressure as diesel prices, refinery constraints and elevated shipping costs continue to challenge distributors.

U.S. retail diesel prices averaged $6.29 per gallon in September, according to the U.S. Energy Information Administration’s latest Short-Term Energy Outlook. While prices have begun to ease from September highs, EIA expects diesel to remain above $6 per gallon in October before gradually declining. As of October 5, the national average stood at $6.20 per gallon, roughly $2.49 higher than this time last year.

The challenge is increasingly about more than the price or availability of crude oil.

Reuters reported that Middle East crude exports have recovered significantly in recent weeks, including shipments through the Strait of Hormuz; flows through the critical waterway had rebounded to approximately 14.2 million barrels per day, about 80% of pre-conflict levels. Yet high tanker rates, increased insurance costs and reduced refining capacity are keeping overall shipping prices high.

Additionally, tanker rates on some Middle East-to-Asia routes have surpassed $1.2 million per day, according to Reuters, as attacks, transportation disruptions and shifting trade routes have made moving energy around the world considerably more expensive.

Tight diesel supplies add pressure

The United States is also entering the fourth quarter with relatively limited distillate inventories.

The U.S. Energy Information Administration (EIA) has reported that East Coast distillate inventories were 32% below their five-year seasonal average in September and are expected to remain between 20% and 30% below average through the winter. Earlier forecasts also showed U.S. distillate inventories falling below 100 million barrels, reflecting both reduced global refinery output and strong international demand for U.S. fuel exports.

Those conditions prompted EIA to raise its broader oil-price outlook, as outlined in its October 2026 Short Term Energy Outlook. Brent crude is now expected to average approximately $105 per barrel during the fourth quarter of 2026 as global inventories decline and energy infrastructure disruptions continue. EIA also pointed specifically to tight diesel markets as a key source of price pressure.

Reuters reported on October 7 that the International Energy Agency and European Union officials were discussing additional releases of oil and diesel stocks after refinery damage and disrupted tanker traffic contributed to sharply higher diesel prices. The same Reuters report noted that G7 countries had previously agreed to release 100 million barrels from emergency petroleum stocks, although officials had not yet specified how much of that total would be diesel versus crude oil.

What it means for distributors

As distributors know all too well, the impact extends well beyond prices at the pump.

Diesel is a direct operating expense for companies managing delivery fleets, but higher fuel costs can also work their way through the supply chain through inbound freight charges, supplier surcharges, branch transfers and jobsite delivery costs. EIA noted that high diesel prices can contribute to higher road and rail freight costs across virtually all categories of goods.

That makes the current environment another potential margin challenge for distributors already navigating elevated material costs and an uncertain pricing environment.

There are signs of improvement ahead. In an October 6 press release on the Shirt Term Energy Outlook, EIA stated that it expects oil flows to continue recovering and inventories to gradually rebuild, with Brent crude forecast to average $84 per barrel in 2027 and retail diesel eventually moving closer to $4.50 per gallon.

The bottleneck has shifted from simply producing enough oil to the cost of refining, insuring, shipping and delivering it, leaving distributors with another supply-chain pressure that could weigh on freight, fleet expenses and margins through the final months of 2026.