I want to talk about what's happening in the energy markets right now, because energy is driving a lot of what we're seeing in inflation, interest rates, and the capital markets every single day. I'll be upfront: this is a genuinely complicated topic, and I don't think it does anyone justice to boil it down to a single headline number. The people who do that—often for political reasons—tend to leave out something important. So, bear with me. I want to walk through the fundamentals first, because once you understand how the pieces fit together, the diesel price you're paying at the pump, and the interest rate decisions coming out of the Fed, make a lot more sense.
Why Is Energy Suddenly Complicated Again?
Let’s start with the basics. Energy is a global market, and even today, roughly 80% of the world's energy still comes from carbon-based sources: oil, coal, and natural gas combined, according to the Energy Institute's Statistical Review of World Energy. The rest comes from nuclear, hydro, wind, and other renewables. And overall global energy use keeps climbing, at a meaningful pace.
You've probably heard that AI and data centers are behind a lot of the new demand. That's true, but the number gets exaggerated if you're not careful about scope. Globally, data centers still make up a small share of total electricity use, under 2%, per the International Energy Agency. But here in the U.S. specifically, data centers accounted for roughly half of all electricity demand growth in 2025, and the IEA expects that share to hold through 2030. In other words, it's not that data centers are eating up a huge chunk of the world's power yet—it's that almost all of our new domestic demand is coming from that one source, which is straining local grids even while the global energy mix barely moves.
How Did the U.S. Become Part of a Global Energy Market?
To understand why energy moves the way it does, you have to go back further than most people think. The global energy trade is really just one piece of a century-long march toward globalized trade generally. The U.S. became the anchor of that system after World War II, when we emerged as the dominant naval power and effectively became the guarantor of freedom of the seas for every country, not just ourselves.
That role is why global shipping costs have stayed so low for so long. It's why containerized shipping works: goods, including oil, move in standardized boxes that can go almost anywhere. And it's why manufacturers can shop the globe for the cheapest raw materials and labor. All of that keeps inflation lower, including energy inflation.
That role came into question after the U.S. left Vietnam in the 1970s without the outcome we wanted. Our credibility as the backbone of the global trading system was genuinely at risk. Desert Shield and Desert Storm, now 35 years ago, reasserted U.S. military reach in a way that, frankly, I don't think gets enough credit today. It paved the way for safer sea lanes ever since, which also means lower shipping insurance costs, since virtually everything that moves by sea, including oil, is insured. All of this built the assumption, mostly unconscious for the average consumer, that oil and other goods can move freely and cheaply almost anywhere in the world.
Is the U.S. Actually “Energy Independent”?
This is where it gets interesting. Oil in the U.S. isn't owned or produced by the federal government—it's produced by for-profit companies like ExxonMobil and Chevron, plus foreign-owned operators like BP and Total. I like to compare it to U.S. auto manufacturing: the government doesn't make cars, but Ford, GM, Toyota, and Hyundai all manufacture here. Same idea with oil. When people talk about “U.S. oil production,” they mean production happening within U.S. borders by private companies, not government output.
With that framing, here's the history. The U.S. was a net energy importer for 67 straight years, from 1952 until 2019, when for the first time in that span, we became a net energy exporter, according to the EIA. U.S. crude production has climbed for four decades, across administrations of both parties, and hit a record of roughly 13.5 million barrels a day in 2025.
So by the broadest measure, yes, we're “energy independent.” But—say it with me—it's more complicated than that.
Why Is the U.S. Still Importing Millions of Barrels of Oil?
Here's the twist: U.S. refineries process roughly 17 million barrels of crude a day—more than the roughly 13.5 million barrels we produce domestically. We’re a net importer of crude even though we're a net exporter of energy overall; those two facts aren't actually in conflict once you look at the mechanics. Total U.S. refining capacity tops out around 18.4 million barrels a day at full run rates, per EIA data.
The gap gets filled mostly by Canada, which supplies more than 60% of all U.S. crude imports. Total crude imports run around 6 to 6.5 million barrels a day, and exports run around 4 million, for a net import figure in the 2-to-3-million-barrel range.
Why import at all if we produce so much? Because of the type of oil. Most U.S. shale production is light, sweet crude, which is shorter hydrocarbon chains. Most U.S. refineries are built to run a medium-to-heavy blend, so we import heavier crude, largely from Canada, and blend it with our own lighter crude, while exporting a lot of our excess light crude to refineries elsewhere in the world that are built for it. Refiners then “crack” that blend into everything from propane and gasoline to diesel and jet fuel. When this system works efficiently, none of it matters to you at the pump. Right now, it matters a lot.
Why Are Diesel Prices Hitting Records Right Now?
This is the heart of the story. As of mid-September, U.S. retail diesel prices were $6.50 / gallon (with prices fluctuating daily), per EIA data—the highest nominal price on record since EIA started tracking the series in 1994. And here's the part that surprises people: the U.S. actually produces more diesel than it uses. We refine somewhere around 5.1 to 5.25 million barrels of diesel a day and only consume about 4 million, making us a net exporter of roughly 1 to 1.25 million barrels a day.
Why are prices so high if we have a surplus? Because diesel is priced on the global market, and that market is under real strain right now. Three things are hitting at once: the conflict disrupting shipping and supply through the Middle East and the Strait of Hormuz; Russia's ban on diesel exports after drone strikes knocked out a meaningful share of its refining capacity; and China and India both limiting their own diesel exports. Meanwhile, U.S. distillate inventories are running well below their five-year seasonal average, right as we head into the higher-demand winter heating season.
You can see the strain most clearly in the crack spread: the refining margin between the cost of crude and the value of what refiners sell. The blended 3-2-1 crack spread (2 barrels of gasoline plus 1 barrel of diesel, from every 3 barrels of crude) sat around $73 a barrel in late September, close to the record set during the 2022 spike. The diesel-specific margin has gone even further, briefly topping $106 to $110 a barrel, an all-time high. For context, that margin has historically averaged closer to $19 a barrel going back to 2006, so this is a genuinely unusual environment, not a routine seasonal move.
My take: This is enormously profitable for U.S. refiners right now, and I don't say that as a criticism—that's what companies in a capitalist system do when margins widen. But it's also a real cost being passed straight through to consumers and businesses, because nearly every good you buy touches a diesel-powered truck, train, or ship at some point on its way to you.
“The U.S. produces more diesel than it uses. The problem isn't a shortage — it's that diesel is priced on a global market, and that market is under real strain.”
Could the U.S. Fix This by Limiting Diesel Exports?
This idea gets floated whenever diesel prices spike, and it's worth taking seriously. In the short run, restricting U.S. diesel exports would almost certainly lower domestic prices from $6.50 down toward the $5 range, though it's hard to say exactly how much. But it would come with real costs. It would tighten an already-thin global diesel market further, which would raise prices for our allies, many of whom, especially in Europe, are already facing dwindling distillate stockpiles heading into winter.
It probably wouldn't last, either. U.S. refiners are for-profit companies, not a nationalized industry, and if they can't export their surplus, they'll likely cut production to match a smaller addressable market rather than run at a loss domestically. That would erase a lot of the relief fairly quickly. Short of the U.S. deciding to nationalize how it manages energy markets—which isn't remotely on the table—that outcome looks close to inevitable if export limits were imposed. It's also worth remembering the oil industry carries real lobbying weight in Washington and has historically benefited from favorable tax treatment, so a move like this would face real political friction, too.
What Does This Mean for Inflation and the Fed?
This is where energy stops being a niche topic and starts affecting your portfolio directly. High diesel prices work their way into the price of almost everything, because almost everything moves by truck, rail, or ship at some point. That's the “diesel-flation” story, and it's a big part of why the Fed raised rates a quarter point earlier this month—its first hike since 2023—in a unanimous 12-0 vote.
Markets are currently pricing in roughly three to four more quarter-point hikes between now and the middle of 2027, based on fed funds futures, though that number moves daily as new data comes in. The 10-year Treasury yield is sitting close to 5%, its highest level in close to two decades, and 30-year fixed mortgage rates have pushed north of 7%.
The bigger question behind all of this is how the Fed threads the needle on a supply-driven inflation problem, which is much harder to manage with rate policy than an ordinary demand-driven one. We touched on that dynamic in our recent post on Kevin Warsh and the Fed's balance sheet: rate policy alone can't fix a shipping lane or a damaged refinery. Ultimately, how this resolves depends more on what happens with the conflicts in the Middle East and with Russia and Ukraine than on anything the Fed decides in a given month. Nobody, including us, has a confident prediction on that timeline. But the Treasury market is making its own prediction right now, and it's pricing in more inflation and higher rates for a while yet.
What Is BIP Doing Differently for Client Portfolios?
This backdrop looks a lot like 2022, when the Fed was late to respond to inflation and long-duration bonds got hit hard: the Bloomberg U.S. Aggregate Bond Index fell more than 13% that year, its worst performance ever. We're running a similar playbook again. The majority of our clients' fixed income exposure sits in short-term or floating-rate structures, including our short-term tactical strategy, built specifically to have minimal sensitivity to rising rates or widening credit spreads. That positioning means most client portfolios have been largely insulated from this year's move in rates, even as broad bond benchmarks have had a difficult year.
On the equity side, our approach hasn't changed. For clients who are adding to their portfolios, a pullback would be a welcome chance to add equity exposure at cheaper prices. For clients who aren't adding, we've been taking profits along the way as markets have rallied, consistent with each client's long-term plan and risk budget. None of this is a market call—it's discipline we'd apply in any environment.
So, Where Does This Leave Us?
I don't have a clean prediction here, and I'd be skeptical of anyone who tells you they do. There's real risk around inflation, real risk around energy prices, and real risk tied to military outcomes nobody can forecast with confidence.
“What I can tell you is that we're watching all of this closely, and we've already positioned client portfolios for a world where rates stay higher for longer rather than betting on a quick reversal.”
If you'd like to talk through how this environment affects your specific plan, reach out to us to connect with a BIP Personal Wealth advisor.
TLDR; (Too Long; Didn’t Read)
Diesel prices just hit an all-time high in the U.S.—not because we're short on oil, but because refining margins have blown out to levels never seen before. Three things are colliding at once: the conflict disrupting shipping through the Middle East, a Russian diesel export ban after drone strikes knocked out a chunk of its refining capacity, and thin seasonal inventories heading into winter. The U.S. actually produces more diesel than it uses, but diesel is priced on a global market, so that surplus doesn't protect us at the pump. This is a supply shock, not a demand story, and supply shocks are the hardest kind for the Fed to manage with interest rate policy. That's part of why the Fed just hiked rates for the first time since 2023, and futures markets are pricing in three to four more quarter-point hikes by the middle of 2027. At BIP, we've kept our fixed income positioning short-duration and floating-rate—the same playbook we’ve run since 2022—so client portfolios are largely insulated from this move in rates.
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