Iran war pushes fuel costs higher as diesel strains US economy
Gasoline is getting pricier, but diesel is the bigger pressure point because it feeds into shipping, surcharges and consumer prices.
By Jordan Bell · Startups & Deals Reporter
· 4 min read
U.S. drivers are seeing the Iran war show up at the pump, with both gasoline and diesel prices rising into the summer travel season. For households, that means less room in the budget; for investors, it adds another inflation pressure at a time when consumers are already stretched.
AAA said the national average gasoline price reached $4.06 a gallon on Wednesday, up 4.4% from $3.89 a week earlier. Diesel has moved even faster: the U.S. Energy Information Administration’s benchmark diesel price rose nearly 34 cents last week to $5.13 a gallon, the largest weekly increase since the first week of the war in March.
Diesel matters beyond the truck stop. It powers much of the freight system, and higher diesel costs can flow into fuel surcharges, which are extra fees companies add to cover rising energy expenses. Those surcharges can lift the cost of moving goods, flying passengers and ultimately buying everyday products.
Christian Lawrence, head of Americas and energy market strategy at Rabobank, told CNBC that diesel is the fuel to watch because it is central to the U.S. economy. He said diesel tends to rise when crude oil rises, but may not fall as much when crude retreats.
Refineries are the bottleneck
Crude oil prices get the market headlines, but crude is not what drivers buy. Refineries, the plants that turn raw oil into gasoline, diesel and jet fuel, are the key link between global oil markets and retail fuel prices.
The EIA said U.S. refineries were operating at 96.1% of capacity, leaving limited room to increase production quickly. CNBC reported that refiners accelerated output after the war began to supply jet fuel and other products to European markets that had lost access to Middle Eastern suppliers.
That tightness makes lower crude prices less powerful than usual for consumers. Brent crude traded at $94 a barrel midday Wednesday, according to CNBC, but fuel prices depend on whether enough refined products are available where they are needed.
Inventories are also thin. The EIA reported that storage at Cushing, Oklahoma, a key delivery hub, has been at “tank-bottom” levels since early June, meaning remaining liquids cannot be physically drawn out. The Strategic Petroleum Reserve stood at 311 million barrels, its lowest level since March 1983, according to EIA data cited by CNBC.
Global supply stress is adding up
The Iran conflict is not the only strain on fuel markets. Analysts at BofA Global Research noted that Ukraine hit 24 of Russia’s 34 largest refineries over the past three months, CNBC reported. Russia has shifted from supplying diesel and other refined products to importing them, while China is also trying to rebuild inventories.
More oil is moving through the Strait of Hormuz than during the worst phase of the March crisis, according to the International Energy Agency. CNBC reported that ship attacks in the waterway remain a risk. The Strait is a key route for global energy trade, so disruptions there can affect crude flows even before fuel reaches consumers.
The White House said President Donald Trump has been direct with Americans and expects prices to fall. White House spokeswoman Taylor Rogers said by email that as the U.S. military reduces Iran’s ability to attack commercial vessels and disrupt energy flows through the Strait of Hormuz, oil and gas prices will return to pre-conflict levels.
The administration has already released oil from the Strategic Petroleum Reserve, eased restrictions on ships carrying fuel and other commodities, and reduced sanctions on Russian and Iranian oil, according to CNBC. The report said those steps may already be reflected in market prices, leaving few immediate options if fuel costs stay high.
The pressure lands on consumers after years of affordability concerns. The consumer price index came in at 3.5% for June, better than expected, CNBC reported last week. But higher fuel costs can eat into wage gains and push households to rely more on savings or credit.
A CNBC All-America Economic Survey released last week found 37% of U.S. voters said they are using credit cards more often because of higher food and gas prices, up 6 percentage points since April. Lawrence told CNBC that more refinery construction could come eventually, but he said there is no short-term fix.
This story draws on original reporting from CNBC.
