Energy Department raises 2027 diesel price outlook by 33 cents amid Iran war

The Energy Department's statistics arm on Wednesday sharply raised its forecast for U.S. diesel prices next year as tight global supplies keep domestic inventories unusually low.

Why it matters: The outlook suggests Americans could face elevated fuel costs well into 2027, as President Trump acknowled Wednesday that oil prices may not fall until after November's midterm elections.

• U.S. diesel prices hit all-time highs this month, due to the Middle East conflict thwarting oil and petroleum product supplies, and Ukraine's drone campaign targeting Russian refineries.

Driving the news: The latest Energy Information Administration outlook expects retail diesel to average $4.40 a gallon in 2027, up 33 cents, or 8.2%, from its previous forecast of $4.07.

• The outlook says low U.S. distillate inventories are being driven by supply losses from the Middle East, Russia and China, alongside unusually high U.S. net exports.
• It expects the inventory problem to be particularly acute this fall and winter because refinery maintenance cuts production just as agricultural and winter demand rises.
• EIA also raised its 2026 forecast 22 cents to $5.07 a gallon.

Zoom in: "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," per the agency's statement.

• "Tightness in the global distillate market has raised domestic prices and incentivized U.S. exporters to increase distillate exports," it added.
• "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."
• Representatives for the Energy Department and EIA did not immediately respond to Axios' Wednesday afternoon request for comment.

The big picture: Trump said Wednesday that oil prices would start "tumbling downward" after the election, but added that relief could take "a little bit longer than the midterms."

• "I think for gasoline, we'll get them below $2 a gallon. But not until after the midterms," Trump said.
• The comments mark a shift from Trump's prediction earlier this week that oil prices would fall "precipitously" after the U.S. wins the Iran war and that the decline would happen "quickly."

Zoom out: Before the Iran war, EIA expected diesel to average $3.47 a gallon in 2027 — 93 cents less than its latest forecast.

Caveat: EIA updates the outlook monthly, and its forecasts are subject to frequent revision as market conditions and underlying assumptions change.

Flashback: Trump repeatedly pledged during the 2024 campaign to cut U.S. energy prices in half within 12 months of taking office.

• In March this year, Energy Secretary Chris Wright told CNN, "We have seen a dramatic decline in gasoline prices, in diesel prices."

The intrigue: EIA expects diesel crack spreads — a measure of refining margins based on the difference between crude oil and diesel prices — to fall steadily through mid-2027 even as its forecast for retail diesel prices next year has risen.

• That's based partly on an assumed return to normal tanker traffic through Hormuz in the near term, which would allow Saudi and Kuwaiti refineries to export more distillate.
• EIA expects improved crude availability to East Asian refiners to boost distillate production.

Yes, but: If Middle East flows remain constrained beyond the end of 2026, EIA says global distillate crack spreads would be higher than currently forecast.

• Russian refinery outages are expected to affect global markets through the first half of 2027.

What's next: The U.S. average retail diesel price could top $6 per gallon within the next week or so, GasBuddy's Patrick De Haan said Tuesday.

Go deeper: Iran war drives $100 billion in extra energy costs for U.S. consumers