Gas is nearly $4 again and diesel just topped $5. It’s not what you think

Gas is nearly 4 again and diesel – “`html

Fuel Costs Surge Amid Complex Market Dynamics

Americans are feeling the pinch at the pump once more as gasoline prices climb toward the four-dollar mark. Following a period of relative calm during the intermittent hostilities with Iran, the national average for gasoline jumped fifteen cents within a single week, landing at $3.94 per gallon. Industry observers note this trajectory suggests another crossing above $4 is imminent. Meanwhile, diesel fuel—which directly impacts shipping expenses for consumers—surpassed the five-dollar threshold on Thursday, marking its first appearance above that level in three weeks according to AAA data.

More Than Just Oil Prices

While the Persian Gulf conflict certainly contributes to these rising costs, the situation extends beyond simple geopolitical tensions. Fuel costs have developed their own momentum, becoming somewhat detached from events in the Strait of Hormuz and diplomatic efforts between Washington and Tehran. During the three-week window when the strait remained at least partially navigable, oil producers extracted over 200 million barrels of crude from the Persian Gulf region. This surge in supply temporarily pushed oil prices below their pre-conflict levels, and consumer fuel costs dropped accordingly. However, those declines never returned to pre-war baselines.

The recent collapse of the Memorandum of Understanding between Iran and the United States triggered another price escalation. Crude oil climbed above $85 per barrel after spending several weeks hovering in the low $70 range. Since crude oil constitutes the overwhelming majority of gasoline production costs, this movement matters significantly. Yet the relationship between crude and consumer fuel has grown increasingly complex. Oil prices have increased by 16 percent since the conflict began, while both gasoline and diesel have surged more than 32 percent—essentially doubling the gains seen in the broader oil market.

Refinery Bottlenecks and Global Supply Shifts

This pricing imbalance stems partly from market mechanics and largely from refinery capacity constraints. Even when oil flowed freely through the strait during periods of calm, that crude required processing facilities to transform it into usable products. Refineries had already established their July operational plans when the MOU was initially signed, making it difficult to quickly adjust production levels. The war severely impacted worldwide refining capabilities, with Iran damaging or destroying thirty Middle Eastern refineries throughout the conflict. This destruction prevented meaningful recovery even after diplomatic agreements took effect.

Natasha Kaneva, JPMorgan’s chief commodities economist, reports that global refinery output contracted by three million barrels at the height of the Strait of Hormuz disruption. Furthermore, 2.1 million barrels of refining capacity remain unavailable today. Meanwhile, events in Ukraine have created complications on another continent entirely. Drone attacks have devastated numerous Russian refineries, transforming the world’s second-largest diesel exporter into a net importer. This dramatic reversal has contributed to a worldwide diesel shortage.

American Fuel Exports and Record Margins

The United States faces an opposite challenge. American refineries operated at 96 percent capacity last month, processing their highest crude volumes since 2019 during the second quarter. However, a record quantity of domestically produced fuel is now flowing overseas. Jet fuel shipments to Europe and diesel exports to Asia and Australia help address global supply gaps. Consequently, US gasoline inventories have fallen to their lowest point since 2012.

Andy Lipow, president of Lipow Oil Associates, notes that current inventories stand at 210 million barrels—only twenty million barrels above critical thresholds. These levels remain just over thirty million barrels higher than the lows experienced during Hurricane Katrina, when gas stations nationwide depleted their supplies. With American fuel allocations shrinking while summer travel demand increases and diesel requirements peak ahead of fall harvest season, the supply-demand equation favors higher prices.

This environment has pushed crack spreads—the profit margins US refineries earn—to unprecedented heights. The US Energy Information Administration reports that gasoline crack spreads have increased sixty percent compared to last year, while diesel and jet fuel spreads have more than doubled their 2025 levels. Adding to these pressures, extreme summer temperatures create additional operational challenges. Refineries require cooler conditions to efficiently boil crude oil into its various components and cool the resulting products. When temperatures soar, production capacity suffers, potentially limiting the amount of fuel refineries can produce during the hottest months of the year.

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