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

Fuel Costs Surge Amid Complex Global Dynamics

Gas is nearly 4 again and diesel – Motorists across the United States are feeling the pinch as gasoline prices climb once more toward the $4-per-gallon mark. The ongoing tensions with Iran have triggered another wave of price increases, with the national average jumping 15 cents over a single week to reach $3.94. This upward trajectory suggests consumers may soon see gas prices breach the $4 threshold again. Meanwhile, diesel fuel has also climbed, surpassing $5 per gallon on Thursday for the first time in three weeks, according to AAA data. These numbers serve as a stark reminder that the military situation in the Persian Gulf directly impacts household budgets.

Beyond Simple Oil Price Increases

However, the current fuel situation is more complicated than a straightforward correlation with crude oil costs. Gasoline and diesel prices have developed their own momentum, somewhat disconnected from events in the Strait of Hormuz or diplomatic efforts between Washington and Tehran. During the three-week period when the strategic waterway remained at least partially navigable, oil companies successfully transported over 200 million barrels of crude from the Persian Gulf region. This movement briefly pushed oil prices below their pre-conflict levels, and fuel costs at the pump dropped accordingly. Yet those reductions never returned to pre-war baselines.

The recent collapse of the Memorandum of Understanding between Iran and the United States has accelerated price movements. Crude oil prices have climbed above $85 per barrel after spending several weeks in the low $70 range. This increase matters significantly for consumers because crude oil constitutes the overwhelming majority of gasoline expenses. More importantly, while oil prices have risen 16 percent since the conflict began, both gasoline and diesel have surged more than 32 percent—essentially doubling the gains seen in the broader oil market.

Refinery Bottlenecks Drive the Discrepancy

This substantial gap between crude oil and refined product prices stems from multiple factors, including market trading patterns and the specific challenges facing oil refineries. Even when the Strait of Hormuz experienced periods of relative calm, the extracted crude required processing facilities to transform it into usable products. Refineries had already established their July operational plans when the MOU was initially signed, meaning they cannot quickly adjust their capacity in response to changing conditions.

The global refining landscape has been significantly weakened by the conflict. Iran has damaged or completely destroyed 30 refineries across the Middle East, preventing a robust recovery even after the diplomatic agreement took effect. According to Natasha Kaneva, chief commodities economist at JPMorgan, global refinery output declined by 3 million barrels during the worst of the Strait of Hormuz disruption, with 2.1 million barrels of refining capacity still offline.

Global Supply Chains Under Pressure

Meanwhile, a separate crisis has emerged on another continent. Ukraine’s drone campaign against Russian infrastructure has severely damaged the world’s second-largest diesel exporter. Russia has essentially halted fuel exports and has unexpectedly become a net importer of diesel, creating worldwide shortages. The United States faces the opposite challenge: its refineries operated at 96 percent capacity last month, processing the largest volume of crude since 2019.

A record quantity of American-produced fuel is now flowing overseas. Jet fuel is heading to Europe while diesel travels to Asia and Australia, helping global markets bridge supply gaps. This export surge has pushed US gasoline inventories to their lowest point since 2012. At 210 million barrels, stockpiles sit just 20 million barrels above critical levels, according to Andy Lipow, president of Lipow Oil Associates. These inventories remain only slightly above the lows recorded during Hurricane Katrina, when stations nationwide experienced severe shortages.

Summer Heat Adds Another Layer

The current supply-demand imbalance is being exacerbated by seasonal factors. The portion of US fuel reserved for domestic consumption is declining while summer travel demand increases. Diesel demand is simultaneously approaching its peak as American farmers prepare for the fall harvest season. This combination has driven crack spreads—the profit margins US refineries earn—to unprecedented levels. Gasoline crack spreads have climbed 60 percent compared to last year, while diesel and jet fuel spreads have more than doubled from 2025 figures, according to the US Energy Information Administration.

Adding to these pressures, this summer’s extreme temperatures present additional operational challenges. Refineries require cooler conditions to function efficiently, as they must boil crude oil into its various components and then cool the resulting products to create gasoline, diesel, jet fuel, and other essential materials. When temperatures soar too high, refineries struggle to maintain output, potentially limiting the amount of fuel they can produce during the very period when demand is highest.