Diesel tops $6 a gallon as White House weighs Defense Production Act to add refining

Diesel is above $6 a gallon for the first time ever, and US refineries are already running at 98 percent of capacity, which leaves almost no room to push more product out and bring the price down fast. President Trump met with nearly a dozen refiners last week, and Reuters reports the White House is weighing the Defense Production Act to expand US refining capacity. No decision has been made, and the talks are expected to continue.

For anyone hauling fuel or buying it wholesale, the number at the rack is the whole day. A truck with a 100-gallon tank costs a lot more to fill than it did a month ago, and that cost rides along on every load behind it.

What $6 buys a hauler

AAA put diesel in the Scranton-Wilkes-Barre-Hazleton area at $6.25 a gallon Friday. That is up about 14 cents from a week ago, 57 cents from a month ago, and roughly $2.25 over the same time last year. Richmond crossed $6 too. Bakersfield gas is $5.85, more than a dollar above last year.

Almost everything a c-store sells got there on a diesel truck, so the cost works its way into what the store pays across the shelf, not only what it pays at the pump. When the fuel line jumps, margins on the inside of the store get squeezed from the delivery side.

The refining idea

Refining executives told the administration that federal money would produce more barrels faster if it went to expanding plants that already run, rather than building new ones. Whether the DPA is the right tool for that is an open question, and nothing is committed yet.

Some capital is already moving on its own. CITGO is advancing a $310 million Depentanizer project at its Lake Charles refinery, one of the largest and most complex plants in the country. That is a long-lead build, not relief for this month's price.

The crude side is not helping. Brent posted its biggest weekly gain since July, even with a 2.8 percent drop Friday, after Saudi Arabia's East-West pipeline shut down and Middle East fighting raised supply worries. Base-oil buyers are feeling it too, with crude back above $100 and 4 and 6 cSt Group III grades hard to source.

Contracts and capacity

World Fuel picked up 33 dealer supply contracts in Illinois and Missouri from CF Altitude, which was tied to c-store retailer Alta Convenience. Consolidation at the branded-dealer level keeps grinding along, and it decides who supplies whom across two states.

Haulers have a second problem lining up. Uber Freight says truckload conditions are stabilizing, but tight capacity and week-to-week sourcing could leave shippers exposed to another sharp rate increase in the Q4 peak. High diesel and a firm rate market at the same time is a hard combination for anyone who buys freight.

What to watch

Whether the White House lands on the DPA or something narrower, and how fast any of it would actually add barrels. Whether the Saudi East-West line comes back and takes some risk premium out of crude. And whether Q4 freight tightens the way Uber Freight is flagging, which would stack rising haul costs on top of already record diesel. The rack price is the one to keep checking daily.