Diesel Hits Record $5.85, Squeezing Freight Costs

Paasha Mahdavi, a political science professor at UC Santa Barbara, told the San Francisco Chronicle by email that refineries in Russia and the Persian Gulf have been damaged in the ongoing wars, and that the fighting has badly hampered exports of the main ingredients for making diesel from crude.

He expects California diesel to top $8 a gallon before the end of the month, noting prices tend to peak seasonally in September and October with the fall harvest. The California premium over the rest of the country, he said, "was averaging $1.14/gallon before the war, and it's now averaging $1.58/gallon, so the rising trajectory in diesel prices is getting steeper for Californians than other Americans."

Severin Borenstein, an economist at UC Berkeley, said the Strait of Hormuz closure has disrupted shipments of refined products from large Middle East refineries, and warned against confident forecasts. "Futures markets' best guess is that six months or a year out, prices will be substantially lower, but even traders in those markets would tell you that is just a guess," he said.

Rystad analyst Valerie Panopio told Reuters that "due to the protracted supply disruption in the Middle East, we expect fuel oil supply to remain critically tight in the third quarter."