Week in Review: Diesel Supply Tightens While Crude Builds

Crude oil prices are maintaining most of Thursday’s losses, yet are still on pace to end the week up by about $0.40/bbl. Prices fell sharply midweek following reports of progress in U.S.–Iran nuclear negotiations, though Iran’s foreign minister later dismissed consistency in U.S. positions. Ongoing geopolitical events, including renewed peace talks between Russia and Ukraine and a weaker U.S. dollar, have provided some bullish sentiment to oil markets.

US diesel markets are showing clear signs of market tightness—particularly on the East Coast. The spread between June and July diesel futures has widened to 6–7 cents, reflecting backwardation and supply constraints. U.S. distillate stocks dropped by 3.2 million barrels last week, bringing inventories to their lowest levels since 2005. While comparisons to earlier years are muddied by increased biofuels usage, current diesel inventories remain about 16% below the five-year average for this time of year. Days-of-supply metrics are also trending lower.

There is some optimism that high refinery utilization—now at 90.2%—will help alleviate tight supply. Utilization is expected to rise into the low-to-mid 90% range in the coming weeks, which could offer some relief. However, renewable and biodiesel production remains sharply down, roughly 50% lower year-over-year, further contributing to low distillate stock levels. While biofuels are tracked separately from diesel by the EIA, the ongoing production decline is an important factor in understanding the current supply-demand imbalance.

On the macroeconomic front, Fed Chair Jerome Powell noted that the FOMC will reevaluate its inflation and employment targeting framework in 2025 in response to evolving economic conditions and persistent supply shocks. Additionally, April’s flat industrial production figures led to a downward revision in Q2 U.S. GDP growth estimates to 2.2%.

U.S. crude exports have also slowed, falling nearly 10% to 3.76 Mbpd—the lowest rate since January—due to a combination of reduced refinery capacity, rising OPEC+ supply, and ongoing trade-related headwinds. The EIA added to market caution with a revised forecast showing global oil demand growth slowing to below 1 Mbpd in 2025 and 2026, citing weaker economic momentum in Asia.

Despite a slight upward revision to 2025 demand growth, the International Energy Agency (IEA) warns of slowing global oil consumption for the rest of the year. Demand growth is expected to decelerate from 990,000 bpd in Q1 to just 650,000 bpd through year-end, pressured by economic headwinds, rising electric vehicle (EV) adoption, and weaker-than-expected deliveries to China and India.

While the US diesel supply is tightening, the global crude supply is building. The IEA raised its 2025 global supply growth forecast by 380,000 bpd to 1.6 Mbpd, largely due to Saudi Arabia’s decision to increase output under OPEC+. This oversupply could widen the market surplus, with global storage forecasted to rise by 720,000 bpd in 2025.

Prices in Review

Crude prices opened at $61.39 on Monday and experienced modest fluctuations throughout the week. Prices rose steadily through midweek, peaking at $63.62 on Wednesday, before trending lower in the back half of the week. By Friday morning, crude had dipped to $61.70. Despite midweek increases, the market only ended relatively higher with a slight gain of $0.31 per barrel, or 0.51%, for the week.

Diesel prices opened at $2.0770 on Monday and climbed throughout the week, hitting a high of $2.1892 on Thursday. The market eased slightly on Friday, opening at $2.1672. Overall, diesel posted a gain of 9.02 cents per gallon, or approximately 4.34%, for the week—reflecting growing concerns over tight supply and falling inventory levels, particularly on the East Coast.

Gasoline prices opened at $2.1123 on Monday and rose through midweek, reaching a high of $2.1678 on Wednesday. Prices then dipped on Thursday before reversing course slightly to $2.1347 on Friday. Overall, gasoline saw a modest weekly increase of 2.24 cents per gallon, or approximately 1.06%.