The average price of diesel in the United States reached $5.7832 per gallon on Thursday, just three cents below the all-time high of $5.8159 set in mid-June 2022, when the Russian invasion of Ukraine drove fuel prices to record levels, according to data from AAA.

The U.S. national average gasoline price currently sits about $1 per gallon below its all-time high of $5.0165 from June 2022. At over $4.10 a gallon, however, gasoline is more expensive than at any other point at this time of year, and about $1 higher than the $3 average seen before the war in Iran began at the end of February.

Gasoline prices are a concern for the U.S. Administration, which has been pressuring refiners to find ways to lower prices at the pump, two months ahead of the November mid-term elections.

Diesel prices are also a major worry, both for the U.S. economy and for the interest rate path of the Federal Reserve, given that diesel is essential to economic growth and feeds into the inflation of goods prices. Because diesel powers most of the trucks, trains, and ships that move freight, as well as agricultural machinery, sustained high diesel costs tend to pass through to the prices of a broad range of consumer goods — one reason the fuel is closely watched as an inflation signal.

Diesel markets in the United States and worldwide have tightened severely in recent weeks. The squeeze reflects crippled fuel supply from the Middle East and Russia as a result of the Iran and Ukraine wars, rising seasonal demand tied to the harvest season, and insufficient capacity elsewhere to offset the lost diesel flows from the Strait of Hormuz and Russia. The capacity shortfall comes after several U.S. refineries were shut or converted in recent years, leaving less slack in the global refining system to make up for lost supply.

The re-escalation in the Middle East, combined with Russia's ban on diesel exports amid continued Ukrainian drone attacks on refineries, pushed middle distillate cracks to record highs this week. Crack spreads — the difference between the price of refined products and crude oil — are a key gauge of refining profitability and fuel scarcity.

"At this pace, we could even break the all-time diesel record ($5.819/gal) by Labor Day," Patrick De Haan, head of petroleum analysis at GasBuddy, said on Wednesday. De Haan also noted that Gulf Coast spot diesel prices hit a record earlier this week.

"The market is short - buyers bidding up every drop like a housing market with too few homes…higher retail diesel prices coming coast to coast," De Haan said.

By Michael Kern for Oilprice.com