Diesel price volatility is raising North America freight costs

Fuel markets: disruption evolves into sustained system pressure

Energy markets are continuing to adjust—not to what was at first the disruption of a new Middle East military conflict, but to a prolonged period of supply imbalance. Beyond immediate supply shocks, the market is defined by sustained inventory drawdowns, uneven recovery of oil and gas flows, and shortages of refined products.

The broader system dynamic is increasingly being driven by inventories. Global oil stockpiles continued to draw down through May, acting as the primary mechanism to absorb the impact of Middle East supplies being cut off. As those buffers shrink, the system becomes more sensitive to any additional supply constraint or demand spike. This marks a clear evolution into a new phase of inventory depletion being the central risk variable shaping pricing, availability, and volatility.

U.S. diesel prices leveled off in May following earlier spikes, but that stability masks an underlying supply-demand imbalance. U.S. inventories remain below normal while export demand continues to rise, as global markets purchase more North American barrels. The result is a shift from sharp price volatility to a persistently high-cost floor. For carriers, the pressure is less about sudden price swings and more about sustained margin compression from higher fuel costs. For shippers, the pressure comes from fuel surges embedded in freight contracts.

At the same time, jet fuel markets have moved into a more acute phase of disruption. European inventories continued to decline through May, with stocks approaching critical thresholds and airlines responding with capacity reductions. What was previously a warning signal has now translated into operational impacts, including flight cuts and schedule adjustments. Regulators are increasingly flagging aviation fuel as the most immediate supply risk, reinforcing that jet fuel is ahead of diesel as the leading indicator of broader fuel-market stress.

Marine fuel markets are showing a different dynamic. While prices remain elevated and highly volatile across regions, major fueling hubs are seeing some price softening alongside declines in fuel volumes, suggesting that higher costs are starting to suppress use. This is not a return to balance, but rather an early form of market adjustment, with shipping lines actively reducing use through slower speeds, route changes, and operational efficiencies. Cost pressure remains, but is increasingly linked to network decisions.

What to watch for next

• Even if oil and gas flows through key chokepoints begin to normalize, physical supply chains will take months to rebalance due to rerouting, elevated insurance costs, and reduced refining capacity.
• Oil inventory levels will remain the most important signal to monitor, as continued drawdowns could trigger renewed price spikes heading into peak summer demand.
• Jet fuel markets should be watched closely as an early indicator of system stress, as aviation disruptions tend to emerge before broader freight impacts.
• Sustained tightness in diesel supplies and elevated marine fuel costs are increasingly being baked into contract pricing, meaning cost pressures will persist regardless of short-term price movements.

North America fuel trends

The U.S. average diesel price per gallon of $5.60 in May was down from $5.50 in April. In addition to the increase in price month over month, the average price is also higher than the May 2025 price per gallon of $3.50. This was the second highest month of diesel prices on record. It should be noted that the trend in the second half of May was downward, with diesel prices ending the month at $5.52 per gallon.

U.S. average diesel price per gallon

Mexico average diesel price per gallon

The national average diesel price in Canada, shown here in Canadian cents per liter, decreased slightly in recent weeks, but remains high.

Canada average diesel price per gallon

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