The national average price of gasoline hit $4 a gallon on Monday, up 15% in a week, as conflict in the Strait of Hormuz spread to Saudi Arabia. But one commodity analyst says drivers are looking at the wrong number.

“The pain has essentially been transferred from the oil price across to the products,” Matt Smith, director of commodity research at Kpler, said on Monday’s Prof G Markets podcast. Diesel has broken above $5 a gallon nationally, which works out to roughly $170 per barrel in wholesale terms, according to Smith.

With crude above $90, that puts diesel at nearly double the price of the oil it is refined from.

Why Diesel Is the Real Inflation Danger

While $4 gasoline hurts consumers at the pump, $5 diesel hits the entire economy downstream. Diesel reportedly powers around 70% of U.S. freight, meaning sustained prices at these levels may quickly feed into shipping surcharges, grocery prices and core inflation.

That could complicate market expectations for Federal Reserve rate cuts, and squeeze margins at freight-exposed names like FedEx (NYSE:FDX), Union Pacific (NYSE:UNP) and Amazon.com (NASDAQ:AMZN).

Polymarket traders price a rate cut this year at just 15%, but think there is a 59% chance of a rate hike. The odds have swung towards a hike as the Iran war has reignited.

Smith said crude itself has been kept calm by China reportedly cutting imports by 5.5 million barrels per day and refineries dialing back activity. Asked whether pump prices could fall soon, he was blunt: “No, we shouldn’t” expect that. If the standoff with Iran persists into November, he sees crude likely pushing above $100.

A Historic Crack Spread Blowout

The gap between $90 Brent crude and $170 output diesel represents an unusually wide crack spread, the gross margin refiners earn turning oil into fuel. That setup may benefit pure-play refiners like Valero Energy (NYSE:VLO), Marathon Petroleum (NYSE:MPC) and Phillips 66 (NYSE:PSX).

What Prediction Markets Are Pricing

Kalshi traders think there is a 48% chance that gas prices hit $4.60 this year, and a 29% chance we see $5 gas.

A separate contract puts roughly 53% odds on gas staying above $3.50 on Election Day, Nov. 3.

Trump previously demanded retailers get their prices down “immediately,” pressure that has so far failed to hold back the surge in prices.

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