Diesel Prices Set to Stay Painfully High Through 2027

“Band-Aids on a shotgun wound”: Diesel prices to remain high into 2027

Diesel prices are expected to remain elevated well into 2027 as the effects of conflict in the Middle East, damage to Russian refining capacity and constrained global fuel supplies continue to work through the market.

For truck drivers and fleets, the outlook means pump prices may not fall quickly even if fighting ends and shipping through the Strait of Hormuz resumes. Analysts and fuel industry executives say it could take months to restore production, repair damaged infrastructure, reposition vessels and rebuild commercial and strategic fuel inventories.

“If we snap our fingers and the war is over tomorrow, it’s going to take some time, probably the better part of three months, to put ships back in place, fix any damage, and de-mine the Strait” of Hormuz, said Denton Cinquegrana, director of energy research at Dow Jones Energy.

The Strait is a critical route for oil and refined products. During the past month, ships carrying oil, liquefied natural gas and fertiliser have been effectively blocked from passing through the waterway. Damage to facilities in the Gulf has also halted production and reduced the region’s ability to refine crude oil into diesel, gasoline and jet fuel.

Even if a ceasefire holds and a peace agreement is reached, analysts say supply will not return to normal immediately. Refineries would need to restart safely, damaged facilities would need repairs and shipping companies would have to resume regular routes.

Prices have risen sharply

Diesel prices began climbing rapidly in March after the latest conflict between the United States and Iran. Prices moved above $5 per gallon before easing during the middle of the summer. By late summer, the national average had reached a reported record of $6.53 per gallon, while the Energy Information Administration later reported an average of $6.35 per gallon.

In California, diesel has been reported at more than $8 per gallon. In Europe, prices also moved sharply. Diesel reached €2.31 per litre in early April, fell to about €1.86 in early July after a memorandum of understanding between the United States and Iran, and then rose by €0.37 as the conflict flared again.

The increases are affecting more than the cost of filling a truck. Diesel is a major operating expense for carriers, and higher fuel costs eventually move through freight rates and supply chains. Trade routes cannot easily be shortened to offset the added expense, meaning the cost of transporting food, manufactured goods and other products is likely to remain under pressure.

“Demand for diesel will remain high because the economy runs on it,” Cinquegrana said. Unlike airlines, which can reduce fuel use by cutting flights, or motorists, who can sometimes eliminate non-essential driving, trucking has fewer practical alternatives when moving freight.

Supply problems extend beyond the Middle East

The war in Ukraine has added to the pressure. Ukrainian attacks have damaged Russian refineries, while Moscow has restricted diesel exports. Until Russian refineries return closer to normal operating levels and exports recover, global supplies are expected to remain below 2025 levels.

Refining capacity in the United States is another concern. The country had more than 300 refineries operating in 1980, compared with 128 today. Although the remaining facilities are generally larger, overall refining capacity has declined substantially relative to population growth.

Those refineries have also been operating at more than 95% capacity through the summer. Cinquegrana said that level of utilisation is difficult to sustain, while Chuck Ryan, president and chief executive of the Ambest travel centre network, warned that running plants so hard leaves little time for maintenance.

“If one of those goes down in a hot shutdown, it could impact a significant portion of the product we have available today,” Ryan said.

Global fuel markets are expected to remain tight at least through the middle of next year. Morgan Stanley has said the second quarter of 2027 will bring unusually high planned maintenance because some work was deferred from this year. That maintenance could further limit refinery output at a time when supplies are already constrained.

Short-term fixes may have limited effect

Industry officials said several proposed measures would provide only temporary relief. Those measures include releasing diesel from strategic reserves, allowing red-dyed diesel to be used on highways and releasing heating oil reserves.

“These are Band-Aids on a shotgun wound,” Cinquegrana said. He argued that lasting relief depends on the free flow of traffic through the Strait of Hormuz, the return of Russian refineries to near-capacity operations and the completion of refinery maintenance.

Fuel-tax reductions have also been proposed in some jurisdictions. While a tax cut could reduce the amount drivers pay at the pump, industry experts say it would not resolve the underlying shortage of crude oil, refined products or shipping capacity. Cinquegrana described tax cuts as “kicking the can down the road,” adding that time may be the only variable capable of restoring more normal prices.

Rachel Winter of wealth management firm Killik & Co. said it is difficult to predict how quickly pump prices will fall. Much will depend on the stability of any ceasefire, whether oil shipments can move freely through the Strait and the longer-term effect of the conflict on Gulf production. A sustained decline in wholesale prices over several weeks would be needed before drivers could expect a meaningful change at the pump.

Goldman Sachs has warned that persistent diesel costs could also push food prices higher. Farmers tend to purchase fuel in larger quantities during the fall harvest and in winter to maintain storage supplies, making agricultural operations particularly exposed to prolonged price increases.

What fleets can control

With market conditions largely outside their control, trucking companies are being advised to pay close attention to the actual price paid for fuel rather than the size of a advertised discount. Meghann Erhart, chief commercial officer for Maverik, said fleets should compare the final net price after taxes and fees.

A larger discount does not necessarily produce a lower transaction price if the underlying pump price is higher. Other considerations, including reliable pumps, clean facilities, efficient transactions and the time required for a fuel stop, can also affect operating costs for drivers.

The broader message from the industry is that diesel prices are unlikely to normalise quickly. Even if the conflicts ended immediately, experts said supply chains would need months to recover, and planned refinery maintenance could keep pressure on the market into 2027.