U.S. diesel inventories are at the lowest seasonal level since the 1980s while
the market heads into its seasonal demand peak (late-summer/autumn farm harvest
then winter heating), leaving the diesel complex highly sensitive to supply
shocks. On-highway diesel average retail price on Aug. 24 was about $5.65/gal,
roughly $1.94/gal higher YoY (+>50%) and near 2022 highs, indicating tight
stocks are already feeding into end-user prices. U.S. refineries are running
near capacity even as inventories sit at multi-decade lows, and global supply
risks — Middle East refinery damage, attacks on Russian refineries, and Strait
of Hormuz shipping disruptions — are compounding the squeeze. Market
implications include upside risk to diesel and crude prices, positive
sensitivity for refining equities, potential pass-through to U.S. inflation and
attendant implications for Fed policy.
