No relief in sight for U.S. drivers as gas and diesel prices surge

Gasoline and diesel prices continued to surge on Thursday, with energy experts warning that those costs are likely to climb in the days ahead amid festering geopolitical conflicts overseas.

“Consumers should plan on higher prices for longer,” said Patrick De Haan, a petroleum expert at GasBuddy, which tracks U.S. fuel prices.

The national average for gasoline jumped 7 cents overnight to $4.44 a gallon, according to AAA, up nearly 50% since before the Iran war started in February. Diesel, essential for transporting food and other goods around the U.S., hit a record $6.40, up 77 cents since the beginning of September.

De Haan projects that gas could hit $4.50 a gallon later this week, citing GasBuddy data, which put the national average at $4.46 a gallon. Ongoing fighting in U.S.-Iran and Russia-Ukraine wars, which have crimped global oil supply, “increase the likelihood of further increases,” he said.

De Haan said diesel could hit $6.60 a gallon as early as this weekend. A handful of states have already exceeded that benchmark, including California, where diesel costs an average of $8.35 a gallon, according to AAA.

“Turbocharged” inflation?

Some motorists respond to higher gas prices by driving less, noted Tom Kloza, chief energy adviser for Gulf Oil. But reducing diesel consumption is harder given that the fuel is widely used in trucking, rail, construction and other critical commercial activities. 

“Buckle up and recognize that inflation is likely to get turbocharged by these high prices for a product you probably don’t care much about, which is diesel fuel,” he told CBS News. “Everything that moves around the country and all crops are dependent on spending money on that fuel.”

In addition to consumer goods, elevated diesel prices could also increase Americans’ utility bills, Kloza said. Northeast residents in particular could also be in for an expensive winter, given that around 4 million households rely on heating oil, made from diesel, to keep their homes warm, he said.

“They’re looking at prices in the $6 range,” he said. “If you use 1,000 gallons in a winter, that’s $6,000.”

Kloza said that he foresees gasoline hovering between $4.25 and $4.50 a gallon — still painful for consumers, but not significantly above Thursday’s national average.

“All about refining capacity”

Geopolitical conflicts have pushed crude oil prices higher, raising gasoline and diesel costs for Americans. Brent crude, the global oil benchmark, traded around $103 a barrel Thursday.

“It’s the two wars, which now look like the three,” said Tom Kloza, chief energy adviser for Gulf Oil, referring to the Iran war, an expansion in the conflict sparked by attacks from Iran-backed Houthi rebels and the ongoing Russia-Ukraine war.

Fuel prices are rising due to reduced refining capacity — both overseas and in the U.S. — which has exacerbated the global oil shortage, De Haan said. The Midwest is getting hit particularly hard after an ExxonMobil refinery outside of Chicago had to halt production for several hours following a power outage over the weekend.

Recent Houthi attacks in the Red Sea and the shutdown of the key oil pipeline in Saudi Arabia have been “particularly impactful,” he said.

“It’s all about refining capacity,” he told CBS News.

Oil supply has also taken a hit, not only from the slowdown in tanker traffic in the Strait of Hormuz, but the Houthi rebel attack on the so-called East-West pipeline in Saudi Arabia, which has been a key alternative for oil exports. The attack could leave the pipeline out of service for weeks, two regional officials told The Associated Press news agency earlier this week.

The attacks on the East-West pipeline cut 4 million barrels per day from the global market, according to Eurasia Group, a global political risk research and consulting firm.

Ukrainian drone strikes targeting Russian oil infrastructure have also dealt a major blow to Russia’s refining capacity, cutting off a key supplier, De Haan added. Kloza estimates 3 million barrels of refining have been knocked out due to the Ukrainian drone strikes, further reducing the world’s refining capacity, which he said is normally around 100 million barrels a day.

“Russia exports a significant amount of diesel to the global supply chain,” De Haan said. “Without that export, which Russia has banned since July, and with these continued attacks, it makes it less and less likely that Russia can meaningfully contribute.”

Midwest, West Coast getting hit

While the conflicts are thousands of miles away, the economic pain is landing close to home, with American drivers in some states paying much more to fuel their cars than the national average.

Gas prices in Illinois averaged $4.78 a gallon on Thursday, more than 30 cents above the national average.

Kloza said the West Coast, which already has limited refining facilities, is also feeling the pinch of higher gas prices. Drivers in California, the state with the highest fuel prices, are paying more than $6 a gallon on average for gas.

“Blue states tend to be more expensive,” Kloza said. “Red states tend to be cheaper, and that has a lot to do with where the energy is and where the refining is.”