Oil markets have re-entered a phase of "coexisting cooling demand and constrained supply." Brent crude is trading around $87.4 per barrel, down roughly 1.2% on the day, while West Texas Intermediate (WTI) is near $81 per barrel. Although prices have retreated from recent highs, terminal fuel costs for American consumers remain significantly higher than last year.
The latest official weekly data shows that the average retail price for regular gasoline in the US was $4.006 per gallon on August 10, up $0.888 from the same period last year. The average price for on-highway diesel was $5.257 per gallon, a year-on-year increase of $1.503. The market's real challenge is not whether crude oil is falling, but whether crude prices, refinery capacity, product inventories, and cross-regional transport can recover simultaneously. For gasoline and diesel, these four variables are not improving together, which explains why the temporary pullback in crude has not yet fully translated into lower pump prices.
Where the bottleneck lies
US commercial crude oil inventories increased by 17.4 million barrels to 424.4 million barrels for the latest week, a single-week gain of 4.3%. While this appears to be a clear crude build, the inventory structure is more telling than the aggregate figure. Over the same period, gasoline inventories fell by 1 million barrels to 208.7 million barrels, roughly 6% below the five-year average. Distillate fuel inventories stood at 107.1 million barrels, about 12% below the five-year average. This indicates the US market is not short of crude oil itself; what is truly scarce is the effective supply that can be promptly converted into final products like gasoline and diesel. The diesel market, in particular, must simultaneously serve road freight, industry, agriculture, and some heating demand, and its inventory buffer is significantly weaker than that of crude oil.
Refineries are already operating at high rates. For the week ending August 7, US refinery crude runs averaged about 17.2 million barrels per day, with a utilization rate of 96.2%. Gasoline production was roughly 9.6 million bpd, and distillate production was about 5.3 million bpd. At such high utilization, there is limited room to significantly increase supply by further raising operating rates. For traders, this explains why the rapid build in commercial crude inventories has not led to a substantial easing in refined product prices.
The geopolitical risk premium
The core risk premium in current oil prices still stems from the Strait of Hormuz. Official data shows that approximately 21.6 million bpd of crude oil and petroleum liquids were transported through the strait in the fourth quarter of 2025, but this figure dropped to just 4.9 million bpd in the second quarter of 2026, with crude oil and condensate accounting for only about 3.7 million bpd. This is not an ordinary supply fluctuation; it is a significant dislocation in the global crude oil logistics system. While some crude can be rerouted via overland pipelines and other ports, alternative capacity is limited, and transport distances, shipping schedules, insurance costs, and inventory requirements all increase. Consequently, even if global nominal production capacity has not been permanently lost, actual deliverable supply remains constrained.
The latest monthly assessment shows global oil supply rose to roughly 101.5 million bpd in July, but it is still 6.3 million bpd lower than the same period last year. Production from the Gulf region remains shut-in at around 8.3 million bpd. Concurrently, transport disruptions intensified from July to early August, leading to a further downward revision of 1.7 million bpd in the third-quarter supply estimate. This further illustrates that current crude prices cannot be explained solely by demand data. Slowing demand will compress the demand premium in prices, but as long as the actual throughput capacity of key shipping lanes remains significantly below normal levels, the supply chain will continue to command a high risk compensation.
Why diesel is stickier than gasoline
The price logic for gasoline and diesel is increasingly diverging. Gasoline is primarily influenced by summer driving demand, crude costs, and refinery runs. Diesel, however, is also impacted by the global reduction in middle distillate supply. The latest international energy market assessment shows that global refinery crude runs in July were about 80.9 million bpd, a year-on-year decrease of nearly 5 million bpd. Due to disruptions in Middle East refined product exports, the global refinery run estimate for the third quarter has been revised down by another 370,000 bpd, keeping light and middle distillate crack spreads in an unusually high range. This is the primary reason diesel retail prices are showing more stickiness than crude oil.
The US Energy Information Administration's latest August forecast projects an average regular gasoline price of approximately $4.01 per gallon for the third quarter of 2026 and $3.72 per gallon for the fourth quarter. On-highway diesel is forecast at $5.18 per gallon for the third quarter and $4.86 per gallon for the fourth quarter. The full-year average gasoline price forecast is $3.78 per gallon, with diesel at $4.85 per gallon. Even assuming a partial supply recovery in the fourth quarter, the expected decline in diesel prices is smaller than what the market might anticipate during a normal inventory cycle. The fundamental reason is not a single crude oil price, but the combined effect of low distillate inventories, reduced overseas refinery supply, and constrained cross-regional arbitrage logistics.
As of August 13, Brent crude is trading around $87 per barrel. Over the past month, prices have still accumulated a gain of roughly 3%, with a year-on-year increase of over 30%, although intraday prices have shown a more notable pullback. This price structure reflects two interacting constraints. On one hand, rising inventories, slowing end-user demand, and downward revisions to global demand expectations are alleviating spot market tightness. On the other hand, shipping bottlenecks, refinery disruptions, and low product inventories are preventing the risk premium from fully dissipating.
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