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U.S. refiners are ramping up diesel production
Production is headed for a record in July
Key Takeaways:
- U.S. refiners boosted diesel production to 5.3 million barrels a day in July, putting output on pace for a record month outside winter.
- The increase reflects a global supply squeeze driven by the Russia and Iran wars, strong exports and concerns about disruptions through the Strait of Hormuz.
- Analysts expect further diesel market tightness as refinery maintenance season nears, while low U.S. inventories risk higher prices heading into winter.
U.S. refiners are ramping up diesel production to near-record levels, bucking seasonal trends as the Russia and Iran wars trigger a global supply crunch.
Refiners have produced an average of 5.3 million barrels of distillate fuel oil — which is predominantly diesel — every day this month, according to data from the U.S. Department of Energy. If that pace continues, it’ll be the most diesel the U.S. has ever made in the month of July, and one of the highest months on record outside of winter heating season.
Diesel production is typically highest toward the end of the year as colder weather begins and global demand for heating oil, part of the distillate pool, rises.
This year, however, refiners are ramping up output months ahead of schedule as a severe global supply squeeze unfolds. Renewed fighting in the Middle East once again threatens to disrupt shipments through the Strait of Hormuz, while Russia has banned most fuel exports after months of Ukrainian drone strikes on its refineries.
Even with more production, competition for supplies is elevated. The U.S. is on track for the second-most exports of distillate fuel in July on record — only behind summer 2022 — with countries from South America to Europe suddenly scrambling for supplies.
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That is leaving little cushion domestically as America’s stockpiles are already well below the average levels for midsummer, raising the prospect that supply could be tight heading into the colder months in the fall and that diesel prices at the pump will be high.
Diesel, the workhorse of the global economy, is back above $5 a gallon at the retail level after dipping during a short-lived .U.S-Iran ceasefire. Gasoline prices at the pump have risen above $4 a gallon as well, renewing worries about inflation and stoking political headwinds for President Donald Trump ahead of the midterm elections in November.
Profit margins for making diesel from crude oil in the U.S. and Northwest Europe have already surged to all-time highs.
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Analysts expect further tightness, particularly as weather-related risks emerge in the U.S. and global refinery maintenance season approaches.
“A large period of global turnarounds approaches from September,” said James Noel-Beswick, head of commodities at Sparta Commodities. “Will we build enough diesel stock ahead of that and the winter of Q1 2027? It seems highly unlikely.”
U.S. diesel futures traded near $4.10 a gallon on July 22 while European diesel prices traded near $1,224 a ton, both at the highest levels in about two months.
