Diesel refining margins hit record as Russia bans exports; EPA proposes ending truck derates

Refining margins for gasoline and diesel hit new record highs this week. For anyone hauling freight, the cost side is getting worse. European diesel margins crossed $60 a barrel Wednesday, a record, after Russia announced a diesel export ban. The re-escalation in the Middle East and shrinking global fuel inventories piled on. Crude keeps moving out of the Strait of Hormuz, so the squeeze is in refined product. Carriers pay for that product at the rack.

The mechanics for a fleet are simple. When the margin over crude climbs, diesel gets more expensive faster than crude does, and fuel surcharges lag the rack by a week or two. Carriers running contracts pegged to the DOE average could see their recovery fall behind the spot cost for a stretch. Jobbers buying diesel to resell get squeezed on both ends.

The EPA derate rule

On July 9 the EPA signed a proposed rule that would stop new diesel engines from cutting a truck's speed when the emissions system throws a fault. Instead of a derate that slows a loaded truck toward 5 mph, the driver gets a beep and a warning light and keeps rolling. A virtual hearing runs July 29 and 30. Written comments close Aug. 29.

Sixteen years ago the same agency required manufacturers to build that derate, the strategy that can drop a loaded truck to 5 mph on an interstate shoulder. Now the EPA says on its own website that the mandate causes needless frustration and real economic hardship. Six days before the proposal, President Trump pardoned nine men convicted of defeating that emissions system.

For a carrier, a derate breakdown on the shoulder has always been a safety and downtime problem. If the rule holds, a fault light stops being a load-stranding event. That could take real money off the maintenance and towing line, though nothing changes until the rule is final.

What to watch

Whether Russia's export ban holds and how long the Middle East stays hot will set where diesel margins go from here. Margins could ease if refined product supply loosens. Watch the DOE diesel average over the next two weeks to see how fast the rack increase feeds into surcharge recovery. During that lag, carriers pay the higher rack price before surcharges catch up. On the EPA rule, the July 29 hearing and the Aug. 29 comment close are the next markers, and the pardons signal where enforcement is heading.