Diesel prices in the US surged past $6 per gallon for the first time ever on Friday amid concerns over energy supply disruptions that in turn could fuel inflation.
The average diesel price rose to $6.0556 per gallon from $5.9773 on Thursday and $3.7053 a year ago, according to data from AAA, a travel organization that tracks fuel prices nationwide.
Crude oil prices were retreating on Friday but were on track for their second straight weekly gains. West Texas Intermediate is up 16% on the month so far and Brent has climbed 15% following two consecutive monthly increases as tensions between the US and Iran escalated.
"Crude oil has risen close to 8% (this week), while diesel has jumped around 11% as already tight refined-product markets face another deterioration in the Middle East supply outlook," Ole Hansen, head of commodity strategy at Saxo Bank, said in a Friday report.
Regular gas prices averaged $4.2950 per gallon in the US on Friday, compared with $4.2770 the day before and $3.1949 a year ago, AAA data showed.
"As mentioned on several occasions, focusing exclusively on Brent risks understating the scale of the energy squeeze," Hansen said. "Refined products remain under even greater pressure, with diesel once again outperforming crude this week, trading well above $200 per barrel."
President Donald Trump's advisers have privately raised the prospect of the Iran war dragging on through the remainder of his term, The Wall Street Journal reported earlier this week.
"Middle distillates sit at the heart of the global economy through trucking, shipping, aviation, agriculture, construction and industrial activity, meaning sustained high prices can transmit rapidly into broader inflation," Hansen said.
Official data on Friday showed US consumer inflation hit a three-month high in August as energy prices rose, while the core measure unexpectedly accelerated, likely adding pressure on the Federal Reserve to raise interest rates next week.
On Thursday, data showed US producer prices rose at the fastest pace in three months in August amid higher fuel costs.
A prolonged energy shock could keep inflation elevated even as higher borrowing costs increasingly weigh on economic activity, according to Hansen. "Markets are therefore testing policymakers' ability to contain renewed inflation pressure without creating broader financial stress."
Interest rate traders are now pricing in an 87% probability that the Fed will raise the benchmark lending rate by 25 basis points on Wednesday, up from 72% a day ago, according to the CME FedWatch tool.
