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FRIDAY, JULY 31, 2026   |   SPECIAL REPORT & ANALYSIS

ENERGY & FARM INPUTS  |  DIESEL SUPPLY SQUEEZE

Diesel Supply Squeeze Threatens U.S. Harvest and Farm Margins

Refinery outages, not crude alone, are driving a new farm-cost shock — with on-highway diesel up nearly 40% from a year ago just as the combines get ready to roll.
 

Analysis  ·  July 31, 2026
 

Concerns about diesel availability are intensifying as renewed Middle East fighting collides with refinery disruptions in Russia and reduced processing in China, creating a potentially costly setup for the U.S. autumn harvest. As the Wall Street Journal’s Anthony Harrup reports, diesel prices have remained stubbornly high even when crude oil has retreated during pauses in the U.S./Iran conflict.

The U.S. average on-highway diesel price reached $5.313 per gallon on July 27, up 17.9 cents in one week and $1.508 — nearly 40% — from a year earlier, according to the Energy Information Administration. That means an operation using 10,000 gallons would face approximately $15,080 in additional fuel costs compared with the same volume a year ago.

Figure 1. U.S. average on-highway diesel price, weekly, January 2025 through July 27, 2026. The March 2026 outbreak of the U.S.–Iran conflict reset the price level; July’s refinery attacks reversed the early-summer relief. Source: U.S. Energy Information Administration.

A Refining Problem, Not Just an Oil Problem

Crude oil usually accounts for most of the movement in diesel prices. This time, however, the shortage is concentrated farther downstream: There is not enough operating refinery capacity producing diesel, jet fuel and other middle distillates. WTI crude traded near $81 per barrel at the end of July — up roughly 18.5% in a month — but the fuel market has moved far beyond what crude alone would justify.

The U.S. diesel crack spread — the difference between the value of diesel and the crude oil used to produce it — reached a record $93.44 per barrel this week, and Europe’s hit $74.66. The market is paying an extraordinary premium for usable fuel, not merely for crude oil.

Several disruptions are reinforcing one another. Saudi Arabia shut its 400,000-barrel-per-day Jizan refinery following a Houthi attack, while portions of Kuwait’s 615,000-barrel-per-day Al-Zour refinery were idled by a power interruption. Ukrainian attacks have continued to damage Russian refineries, prompting Moscow to extend restrictions on diesel and other fuel exports through Jan. 31, 2027, although some producer exemptions are scheduled to begin Sept. 1.

China has provided less relief than it normally might. Chinese refinery processing fell to 12.47 million barrels per day in June, down 17.7% from a year earlier and the lowest since March 2020. Beijing subsequently relaxed some July export restrictions, but the depth and durability of any rebound in Chinese fuel exports remain uncertain.

The International Energy Agency said global refinery runs remained 6 million barrels per day below year-earlier levels in June, reflecting disrupted Middle East refineries, reduced Russian throughput and lower Asian operating rates. That explains why diesel prices may remain elevated even when tanker traffic improves and crude supplies become more available.

U.S. Inventories Offer Little Cushion

U.S. refiners are running hard, but the domestic system does not have a comfortable inventory buffer. Distillate stocks rose 1.1 million barrels in the latest reporting week but remained approximately 10% below the five-year seasonal average. Meanwhile, four-week U.S. distillate demand was 4.7% higher than a year earlier.

International demand is also pulling fuel from the U.S. market. U.S. distillate exports averaged a record 1.56 million barrels per day during the second quarter, 30% above the five-year average, as buyers sought replacements for disrupted Middle Eastern and Russian supplies. Those exports are commercially attractive for U.S. refiners, but they leave domestic consumers competing with the world market for available barrels.

That competition becomes more important during the autumn. Combines, tractors, grain carts and trucks require large amounts of diesel within a relatively narrow harvest window. At the same time, distributors begin rebuilding heating-oil supplies, while construction, freight and industrial demand remain active. Diesel and heating oil come from the same broad distillate pool, limiting the ability to satisfy one source of demand without affecting the others.

Where Prices Stand: Region by Region

No region has been spared. Every reporting district in EIA’s weekly survey is paying at least $1.36 per gallon more than a year ago, with increases topping $1.70 in California. The Gulf Coast remains the nation’s low-cost region at $5.087 — cold comfort for producers who were paying about $3.45 there last summer. In the Midwest, home to the bulk of U.S. corn and soybean production, diesel averaged $5.196 per gallon, up $1.40 from a year earlier and the largest weekly jump of any region save the Central Atlantic.

Figure 2. Average retail on-highway diesel price by EIA region, week of July 27, 2026. *West Coast figure is the PADD 5 average and includes California, Alaska and Hawaii; California is broken out separately. Source: U.S. Energy Information Administration.

Table 1. Weekly retail on-highway diesel prices by region, week of July 27, 2026, with changes from the prior week and from one year earlier. Source: U.S. Energy Information Administration.

Impact on the U.S. Farm Sector

The most immediate impact will be higher field operation costs. Producers cannot easily reduce fuel consumption during harvest without risking delays, crop losses or deterioration in grain quality. Farms that booked fuel earlier or maintain substantial on-farm storage will be better protected. Producers purchasing fuel on the spot market will be exposed to both higher prices and potentially sharp regional price swings.

Table 2. What the year-over-year diesel increase means for harvest fuel budgets at the U.S. average price, before any regional premium or delivery surcharge. Calculations based on EIA weekly average prices.

The second impact will come through transportation. Higher diesel costs raise the expense of moving grain from farms to elevators, ethanol plants, crushing facilities, feedlots, river terminals and export ports. Fuel surcharges can protect trucking companies, but those costs ultimately move through the supply chain. Farmers may encounter higher custom-hauling charges, increased input-delivery fees or weaker local basis levels where elevators must compensate for higher outbound transportation costs.

Livestock producers face similar exposure through the delivery of feed, movement of animals and transportation of milk and other perishable products. Rural businesses and custom operators with smaller fleets may be especially vulnerable because they have less purchasing leverage and fewer opportunities to hedge fuel prices.

The timing is particularly difficult because USDA was already forecasting 2026 farm production expenses at $477.7 billion, up $4.6 billion from 2025, while inflation-adjusted farm cash receipts were projected to decline 4.5%. USDA had expected fuel and oil expenses to decrease this year, an assumption now at increasing risk if diesel remains above $5 through harvest.

There is one potential offset for crop agriculture. Exceptionally high petroleum-diesel prices and refining margins may improve the relative economics of biodiesel and renewable diesel blending, potentially supporting soybean-oil demand and the value of other agricultural feedstocks. The benefit, however, will depend on federal biofuel requirements, tax-credit values, feedstock availability and whether refiners can secure sufficient supplies.

Outlook: A Ceasefire Alone May Not Be Enough

The diesel market will need more than lower crude prices to produce lasting relief. Refinery capacity must return in the Middle East and Russia, Chinese refinery runs and exports must recover, and U.S. distillate inventories must rebuild before the market enters the peak harvest and heating-demand period.

EIA’s July outlook projected an average U.S. diesel price of $4.61 per gallon for 2026, but that forecast was completed July 1 — before the latest refinery attacks and renewed U.S.-Iran escalation — and is already well below the current $5.31 price. The early-July pullback to $4.578 showed how quickly prices can ease when fighting pauses; the 73.5-cent rebound in the three weeks since shows how quickly that relief can evaporate. The risk is therefore that diesel remains higher for longer than the broader crude market would normally suggest.

For U.S. agriculture, the central issue is no longer merely whether crude oil rises or falls. The greater concern is whether enough crude can be converted into diesel and delivered to rural markets precisely when farmers have little choice but to buy it.

Bottom line

Diesel at $5.31 is a refining story, not a crude story — record crack spreads of $93.44 per barrel mean prices can stay painful even if oil retreats. With distillate stocks 10% below the five-year average, exports at record highs and harvest demand about to peak, producers should treat current prices as a warning, not a spike: price fall fuel needs early, top off on-farm storage on any ceasefire-driven dip, lock in custom-harvest and hauling rates now, and build $5-plus diesel into 2026 harvest budgets. A ceasefire would help, but only restored refinery capacity — in the Mideast, Russia and China — brings diesel durably back down.

Sources: U.S. Energy Information Administration, Gasoline and Diesel Fuel Update (July 28, 2026) and Weekly Petroleum Status Report; The Wall Street Journal (Anthony Harrup); International Energy Agency, Oil Market Report; USDA Economic Research Service, Farm Sector Income Forecast; USDA Agricultural Marketing Service; market price data via Trading Economics.

AG POLICY & MARKETS DAILY   |   ENERGY & FARM INPUTS  |  DIESEL SUPPLY SQUEEZE — FRIDAY, JULY 31, 2026