By Irina Slav – Aug 12, 2026, 3:00 PM CDT
- Diesel prices are surging as Ukrainian attacks on Russian refineries and Houthi attacks on Saudi energy infrastructure are deepening an already severe global fuel shortage.
- U.S. diesel futures jumped 7.4% this week, while retail prices reached $5.32 per gallon.
- Refining capacity is stretched to the limit, with margins soaring and major U.S. refiners running above 95% utilization
Diesel prices surged earlier this week on news about yet another Ukrainian attack on a Russian refinery and a Houthi attack on a Saudi refining facility. Global fuel supply is already out of balance, and the continued refinery disruption will only aggravate the situation, right before peak demand season.
Reuters reported Monday that refining margins in Europe had surged by 10%, and that surge was from an already elevated starting point as refiners around the world see their margins rise to all-time highs on the supply tightening caused by the war in the Middle East and the Ukrainian drone attacks on Russia’s refinery network.
In the United States, the report said, diesel futures booked their sharpest rise since July on Monday, adding 7.4% to $4.19 per gallon. The average retail price for a gallon of diesel was $5.32 on Tuesday, according to AAA data. That was up from $4.88 per gallon a month ago and $3.71 per gallon a year ago. To put it mildly, this is problematic.
Diesel is often referred to as the workhorse of any economy. Indeed, economies run on diesel, which is used for everything from freight transportation to farming, to heating during the winter. If diesel prices are consistently higher for an extended period of time, they will inevitably be passed on to consumers, fueling a more generalized inflation trend.
“Refining margins remain elevated because every additional barrel of product has become significantly more valuable than every additional barrel of crude,” Kpler lead analyst for refining supply and modeling, Sumit Ritolia, told the Wall Street Journal this week.
Indeed, refining margins are breaking records this year, with the WSJ noting that the 3-2-1 crack spread used as a sort of refining margin benchmark had gone up to over $70 per barrel—from a usual level of less than $20 per barrel.
What’s more, refineries are operating at higher than usual utilization rates to make up for lost supply from the Middle East and Russia, but there are limits to how much they can ramp up production. “Refinery utilization above 90-95% simply means there is very little operational flexibility left,” Kpler’s Ritolia told the Wall Street Journal.
Exxon and Chevron recently reported utilization rates of 95% to 97%, while Shell reported utilization rates of over 100%. Now, refineries are beginning to enter maintenance season, which has become even more essential than it already is to ensure fuel supply security. However, refinery season does mean that some output will be temporarily lost, likely pushing fuel prices even higher.
In some parts of the world, there is a refinery shortage, as well. One such part is Europe, where refineries have been closing for years, as national governments and the central EU government pushed ahead with their decarbonization agenda that envisaged mass electrification of transport. This has not happened yet, keeping demand for hydrocarbon fuels substantial, but domestic supply has dwindled. That has exposed the EU even more to global energy markets and caused its import bill to swell.
Analysts now expect refining margins to remain significantly higher than usual until the end of the year because even if the war in the Middle East ends tomorrow—highly unlikely as this is—it will take a while for supply to get rebalanced and Russia’s ban on diesel fuel exports is not getting lifted until 2027.
China, which prevented a surge in global crude oil futures prices by slashing imports, is not about to do the same for fuel prices. The country has kept its export curbs in place, although it has relaxed them, allowing refiners to export more fuels in August. The temporary easing of export caps will be in effect this month, but refiners would also be allowed to roll some of the volumes over to September if they fail to secure purchase deals for the whole allotment.
That will not help with the global fuel crunch, like record U.S. exports have not helped, although they have filled some of the gap left by Russia and the Middle East. Meanwhile, in the U.S. itself, diesel inventories have slumped to the lowest for this time of the year in 30 years, Reuters noted in its report on record diesel prices. In other words, the U.S., the world’s biggest oil and fuel exporter, has limited space for boosting exports to fuel-hungry parts of the world further.
To make the picture even gloomier, the U.S. Energy Information Administration said earlier this week it expected some oil production in the Middle East to remain shut in well into 2027, maybe even until the end of the year. This suggests a prolonged supply squeeze both in crude oil and, as a consequence, in fuels. Such a trend might accelerate transport electrification, but then again, it might sap demand for EVs as well as higher fuel costs spread to every industry, including EVs.
By Irina Slav for Oilprice.com
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Irina Slav
What I Cover
Irina Slav has been writing about global energy markets since 2007, covering the oil and gas industry, energy security, commodities, and the…
