Record refining margins have pushed the US diesel average to $6.53 a gallon

Eighty-eight cents in four weeks came off a base of $5.649, which is a 15.6% rise in a month ^[1]. Run the 74% year-over-year figure backwards and last September's national average was about $3.75 a gallon, so the pump price is roughly $2.78 higher than it was then ^[2].

The export figure is what the politics runs on. Distillate production averaged 5.1 million barrels a day through August with almost no imports, and exports averaged a record 1.74 million over the past two months ^[6], or 34% of output ^[3]. That leaves about 3.36 million barrels a day for domestic use, and keeping every exported barrel at home would add roughly 52% to that volume ^[4]. Grassley's stated hope is that a ban lets diesel cool before the midterms ^[4]. Wolf Richter, who assembled the EIA data, writes that the rest of the world is short of diesel and that US refiners supply it ^[5].

The margin is also where a structural reading of this breaks. A crack spread at a record can compress with crude flat, and the retail price comes down with it, because Richter attributes the record pump price to the record margin sitting on top of an already high crude price ^[7]. His account does not include refinery capacity or outage figures, so the case that refining is the binding constraint rests on the margin and the export volume.

Gasoline is the faster channel into the published indexes. All grades averaged $4.61 a gallon on Monday, up 16 cents in a week and $1.31 from a year ago ^[9], which puts last September near $3.30 ^[6]. Gulf Coast spot jet fuel was $4.418, up 115% in a year and a hair below the May 2022 record ^[12]. Those two are not the same kind of number: one is a retail average at gas stations, the other a spot price. Airlines hedge part of their fuel and Delta runs its own refinery, so their costs do not track spot, and they are trying to pass the increase to flyers through fares ^[13].

The broadest measure had already moved before any of this. The GDP price deflator rose 6.4% annualized in the second quarter from the first and 4.4% year over year ^[16], and Richter expects the third quarter to look worse at the current pace of fuel increases ^[17]. "I'm worried about the inflationary mindset taking off again. It's the Fed's job to step on the brakes before inflation turns into a runaway train," he wrote ^[18].

Crude could ease and margins compress, unwinding most of the four-week move before the third-quarter deflator is published. Trump could grant Grassley the ban, in which case domestic diesel decouples downward and refiners absorb the difference in realized margin. The third path is no ban and a world still short of diesel ^[5], with the 88 cents working through freight rates and business input costs into goods prices over the following quarters ^[20]. I'd weight that third one highest, and the check on it is simple: if crack spreads compress back toward normal within a month, most of this reverses without any policy at all.