Energy Department increases 2027 diesel price forecast by 33 cents

<p>The Energy Department's statistics arm on Wednesday raised its forecast for U.S. diesel prices for 2027, citing tight global supplies that have kept domestic inventories low.</p><p><strong>Importance:</strong> This outlook indicates that U.S. consumers may experience elevated fuel costs extending into 2027, as President Trump noted that oil prices might not decrease until after the midterm elections in November.</p><hr /><ul><li>U.S. diesel prices reached all-time highs this month due to the ongoing conflict in the Middle East affecting oil and petroleum product supplies, along with Ukraine's drone operations targeting Russian refineries.</li></ul><p><strong>Details:</strong> The latest Energy Information Administration (EIA) outlook projects that retail diesel will average $4.40 per gallon in 2027, an increase of 33 cents, or 8.2%, from the previous forecast of $4.07.</p><ul><li>The report attributes low U.S. distillate inventories to supply losses from the Middle East, Russia, and China, as well as high U.S. net exports.</li><li>It anticipates that the inventory situation will be particularly challenging this fall and winter due to refinery maintenance reducing production while agricultural and winter demand rises.</li><li>The EIA also adjusted its 2026 forecast upward by 22 cents to $5.07 per gallon.</li></ul><p><strong>Forecast:</strong> The agency stated, "We forecast U.S. distillate fuel oil inventories will drop below 100 million barrels in September and will remain below the five-year (2021–2025) low through much of 2027."</p><ul><li>It added, "Tightness in the global distillate market has raised domestic prices and incentivized U.S. exporters to increase distillate exports."</li><li>"We assume global production of distillate fuel will remain below last year's levels in the coming months, contributing to low U.S. diesel inventories and high diesel prices."</li><li>Representatives for the Energy Department and EIA did not respond to Axios' request for comment on Wednesday afternoon.</li></ul><p><strong>Context:</strong> Trump stated on Wednesday that oil prices would begin to decrease after the elections, but suggested that relief might take longer than the midterms.</p><ul><li>He expressed confidence that gasoline prices would fall below $2 per gallon, but not until after the midterms.</li><li>This marks a change from Trump's earlier prediction that oil prices would drop "precipitously" following a U.S. victory in the Iran war.</li></ul><p><strong>Historical Comparison:</strong> Prior to the Iran conflict, the EIA had expected diesel prices to average $3.47 per gallon in 2027, which is 93 cents lower than the latest forecast.</p><p><strong>Note:</strong> The EIA updates its outlook monthly, and forecasts are subject to change based on market conditions and underlying assumptions.</p><p><strong>Background:</strong> Trump has repeatedly promised during the 2024 campaign to reduce U.S. energy prices by half within 12 months of taking office.</p><ul><li>In March, Energy Secretary Chris Wright mentioned a significant decline in gasoline and diesel prices.</li></ul><p><strong>Future Expectations:</strong> The EIA anticipates that diesel crack spreads, which measure refining margins based on the difference between crude oil and diesel prices, will decline steadily through mid-2027, despite the increase in retail diesel price forecasts.</p><ul><li>This expectation is based partly on a presumed return to normal tanker traffic through the Strait of Hormuz, which would enable Saudi and Kuwaiti refineries to export more distillate.</li><li>The EIA also expects improved crude availability to East Asian refiners to enhance distillate production.</li></ul><p><strong>However:</strong> If Middle East supply remains constrained beyond the end of 2026, the EIA warns that global distillate crack spreads could exceed current forecasts.</p><ul><li>Russian refinery outages are expected to impact global markets through the first half of 2027.</li></ul><p><strong>Next Steps:</strong> GasBuddy's Patrick De Haan indicated that the U.S. average retail diesel price could exceed $6 per gallon within the next week.</p><p><strong>Further Reading:</strong> <a href="https://www.axios.com/2026/09/07/iran-gas-prices-diesel-100-billion">Iran war drives $100 billion in extra energy costs for U.S. consumers</a></p>