U.S. diesel prices could stay above $5 a gallon into mid-2027, according to veteran fund manager Frank Holmes, even as American refineries operate at unusually high rates.
Holmes, CEO and chief investment officer of U.S. Global Investors, forecasts prices will ease to $5.75 by the end of 2026 and $5.25 by mid-2027, assuming supply-chain disruptions gradually subside.
His mid-2027 estimate is roughly 15% above the Energy Information Administration’s forecast of $4.57 a gallon for the second quarter of 2027, although the projections cover slightly different periods.
“Prices may remain above historical norms if refining capacity stays constrained,” Holmes told Benzinga in an exclusive interview.
Refinery Bottlenecks Keep Diesel Prices Elevated
U.S. diesel averaged $6.28 a gallon on Oct. 19, up nearly 10 cents from the previous week, according to the EIA.
Diesel powers trucking, farming and construction, so high prices can keep feeding into freight costs and inflation even if crude oil falls.
U.S. refineries operated at more than 95% of capacity between May and September, their highest utilization for those months since 1998, according to the EIA.
But U.S. refining capacity has fallen 4% since 2019, leaving limited room to increase production. Overseas refinery disruptions and longer shipping routes have further constrained diesel supplies.
“Oil in the ground doesn’t move a truck. It must be refined, transported and delivered,” Holmes said.
How Shipping Costs Could Worsen the Diesel Shortage
Soaring shipping costs threaten to make the diesel shortage worse by squeezing refinery profits, even where crude oil is available.
For some Asian refiners, freight and insurance now account for as much as 30% of the delivered cost of crude, compared with just 3% to 7% normally, according to Reuters.
The International Energy Agency reported that margins on some Asian refining operations turned negative in September as transportation costs surged.
“These added costs can squeeze refinery margins and, in some cases, lead refiners to cut production, worsening diesel shortages,” Holmes said.
Even when refineries maintain production, disruptions can force diesel shipments onto longer routes, tying up tankers and increasing delivery costs.
Not every refiner is losing out. Valero Energy Corp. (NYSE:VLO) reported record third-quarter net income of $6.8 billion Thursday, as its refining margin nearly tripled to $39.24 per barrel.
The Iran war has also severely restricted traffic through the Strait of Hormuz, forcing energy shipments onto longer and more expensive routes.
On Polymarket, traders assigned just a 12% probability to traffic recovering to a seven-day average of at least 60 vessel transits by December 31, with approximately $15.4 million traded.
Holmes’ firm manages the U.S. Global Sea to Sky Cargo ETF (NYSE:SEA), which holds tanker operators including DHT Holdings Inc. (NYSE:DHT) and Scorpio Tankers Inc. (NYSE:STNG).
Holmes said President Donald Trump’s agreement for an initial Russian diesel shipment of roughly 2.25 million barrels, with further deliveries promised, could provide relief but would not resolve the underlying supply constraints.
The prospect of additional Russian supplies has raised questions about whether easing the shortage could reverse refiners’ rally.
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