Diesel prices hit a record to end the week, with the runup traced to wartime damage and disruptions that have knocked refineries offline and tightened supply worldwide. Ukraine's strikes have damaged Russian refining, and Moscow has responded by halting diesel exports. In the Middle East, assaults by Iran on tankers transiting the Strait of Hormuz, along with hits on energy infrastructure, have sidelined capacity in that region.
On Valero's July 30 earnings call, Chief Operating Officer Gary Simmons said the fighting has idled roughly 5 million barrels a day of refining capacity. In a note to CNBC, Andy Lipow of Lipow Oil Associates estimated that around 8% of the diesel needed to meet global demand of 28 million barrels a day is currently unavailable. He broke it down this way: Russia's export ban removes about 800,000 barrels per day, turmoil around the Strait of Hormuz is curbing roughly 1.2 million barrels per day, and Iran's Houthi allies have taken Saudi Arabia's 200,000 barrels per day Jizan refinery out of action.
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Diesel has a way of showing up in your life even if you never touch a nozzle. As John Kilduff of Again Capital put it on CNBC's "Morning Call," "You can do all the virtual shopping you want, it's all going to come to your house on a truck that ran on diesel fuel so there's no way around it." Bob McNally of Rapidan Energy told CNBC's "Squawk on the Street" on August 17 that diesel shows up "in transportation, it's in heating fuel, it's in agriculture, it's in industrial uses," calling it "the important macro fuel to watch." On the company's Aug. 5 call, Phillips 66 marketing chief Brian Mandell said, "Refining fundamentals are very tight and getting tighter with the issues in Russia and the Mideast." And Lipow called diesel "a stealth tax," pointing out that higher fuel costs tend to get baked into the price of the stuff that moves by truck and rail.
