Diesel Prices Slide: How Red-Dye Changes Could Impact Drivers

Benchmark diesel slides; what will be the impact of the red-dye change?

The benchmark diesel price used to calculate many fuel surcharges fell for the second consecutive week, but the effect of a new federal policy allowing red-dyed diesel for over-the-road use remains uncertain.

The Department of Energy/Energy Information Administration’s weekly average retail diesel price dropped 18.3 cents per gallon to $6.199. The price is effective Monday and was published Tuesday. It is now 33 cents below the all-time high in the DOE/EIA series, $6.529 per gallon, recorded two weeks ago.

The decline follows weakness in ultra-low sulfur diesel futures on the CME exchange. The first-month contract, November ULSD, settled Monday at $4.5452 per gallon. Although that was more than 40 cents below the previous Wednesday’s settlement for the front-month contract, the earlier price had been influenced by short-covering as the October contract neared expiration.

A comparison of the November contract across the change in contract months shows a more gradual decline. November ULSD settled at $4.6336 per gallon on Sept. 23, when it was the second-month contract, and closed at $4.5452 Monday after several days of weakness.

Diesel prices also have been pressured by a decision last week by International Energy Agency member countries to release 100 million barrels of crude, diesel and other petroleum products from storage in Europe and the United States.

The latest decline follows a six-week period during which the DOE/EIA average increased five times. Each of those increases was in the double digits.

Executive order changes federal treatment of red diesel

Late Monday, President Donald Trump signed an executive order allowing red-dyed diesel to be used in over-the-road applications through the end of the year.

Red-dyed diesel is chemically similar to the clear diesel used by highway trucks. The dye identifies fuel intended for tax-exempt or tax-reduced off-road uses, including agricultural equipment. Because it generally is not subject to the federal highway excise tax, it has traditionally been restricted from use in most on-road vehicles.

The federal highway diesel tax is roughly 24 cents per gallon. Applying that amount to a 250-gallon fill would represent about $60 in potential federal savings. The White House said savings could exceed $100 per fill in states that also match the federal action.

The order calls for a deferral of excise-tax payments on red-dyed diesel used on the road. It also directs the administration to study ways to eliminate the obligation to pay those deferred taxes. The distinction is important because the order does not immediately make every gallon of red-dyed diesel permanently tax-free.

Analysts have cautioned that the policy may provide less relief at the pump than the federal tax amount suggests. Rystad Energy analyst Preben Sørli said expanding access to tax-exempt diesel could help some eligible users, but it would not change the underlying wholesale price. Refiners would continue to receive the market price for the fuel, while the immediate effect would primarily be a reduction in federal tax revenue.

State rules could limit availability

Federal policy does not override state laws governing dyed diesel. GasBuddy analyst Patrick DeHaan noted that Alabama, Louisiana, Nebraska, North Carolina, Oklahoma and Texas had changed their rules to allow red-dyed diesel on their highways. In many other states, using the fuel on public roads remains illegal or subject to restrictions.

That patchwork creates practical problems for interstate carriers. A truck operating across several states could face different rules at each stop, while large fleets may be reluctant to use a fuel that is not consistently available throughout their routes. Most major truck stops also do not currently offer red-dyed diesel.

Fuel distributors in some states may choose not to carry the product because of concerns about conflicts with local laws. Even where the fuel is available, wholesalers may not immediately pass the full tax savings through to their customers. Retailers are not required to pass lower wholesale costs on to drivers.

State taxes add another layer of uncertainty. Some states apply sales taxes to dyed diesel rather than the standard motor-fuel tax. As a result, the fuel may not be completely tax-free, even where its highway use is permitted.

What drivers should watch

The effect of the federal action will be measured through retail price data from services including AAA, the weekly DOE/EIA survey and the DTS.USA price in SONAR. Regional breakdowns may show whether states that permit broader use of dyed diesel experience a larger decline than states that do not.

Separating the policy’s impact from normal market movement will not be simple. Retail prices also are responding to futures markets, physical fuel supplies and the release of petroleum reserves. For example, a 20-cent decline in ULSD futures could lower retail prices at the same time that the red-diesel policy begins affecting local markets.

The federal change is more significant for highway users who previously had no access to the tax-exempt fuel. Farmers and construction operators already generally qualify to use red-dyed diesel, so the policy may offer them little additional benefit.

An Oct. 1 report from the American Farm Bureau Federation found that Illinois farm diesel prices, as reported by the USDA Agricultural Marketing Service, rose from $3.01 per gallon in September 2025 to $5.61 in September 2026. Illinois agricultural groups continue to seek relief from fuel costs that are weighing on farm operations.

AAA reported that the national average diesel price stood at $6.32 per gallon Monday, down 13 cents from the previous week but still $2.63 higher than a year earlier. Politico, citing ClearView Energy Partners, reported that 10 states representing roughly one-third of U.S. diesel sales had taken steps to allow broader use of dyed diesel or otherwise reduce diesel taxes.

For professional drivers, the near-term result is likely to vary by state, fuel supplier and route. The executive order creates a potential federal tax benefit, but availability, state rules, wholesale pricing and retailer decisions will determine how much of that benefit reaches the pump.