Fear that the Diesel Shock will reignite inflation: The strength of the energy stock ETF 'State Street SPDR S&P Oil & Gas Exploration & Production ETF' stands out in a headwind …

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In the energy market, a serious situation is unfolding that goes beyond just rising crude oil prices. It is the sharp rise in diesel fuel prices, which directly hits the foundations of the real economy such as logistics, agriculture, and construction—the so-called ‘diesel shock.’ In the U.S., as long-term interest rates have risen significantly and the overvaluation of stocks is being recognized, high diesel prices are making it even more difficult to tame inflation. This article explains the background of the diesel shock, its ripple effects on the macroeconomy, and the energy stock ETF ‘State Street SPDR S&P Oil & Gas Exploration & Production ETF,’ which is showing standout price movements in this phase.

Diesel prices have risen by about 70% in one year

According to data from the American Automobile Association (AAA), the national average price of diesel as of September 23, 2026, was $6.50 per gallon, up about 70% from $3.90 a year ago. The scale of this increase can be said to far exceed the range of general crude oil price hikes. The chief economist of a major U.S. investment firm describes this surge as a ‘diesel shock.’

Behind the price surge is a structural supply shortage. According to expert analysis, many refineries in the U.S. that produce diesel fuel have already been closed, and the remaining refineries are operating at near full capacity. In addition to this, the damage to Russian refineries due to the fighting in Ukraine and the sharp decline in supply from the Middle East have combined to spread the supply-demand tightness on a global scale. Since it takes many years to build new refineries, there is no prospect of this situation being resolved anytime soon.

Risk that the embargo debate will spread to the European market

In response to domestic supply concerns, there are moves by the U.S. President and some Republican lawmakers to consider banning the export of diesel fuel to ease the supply-demand tightness. The U.S. recorded a record-high diesel export level of about 2 million barrels per day in August and is now one of the major suppliers. Therefore, it is feared that if an embargo is implemented, it could further worsen supply and demand in overseas markets, including Europe. The direction of the debate over an embargo is being watched as a factor that will influence the trends of the international fuel market.

Ripple effects on core inflation make FRB policy management difficult

Diesel fuel is incorporated into the production and delivery costs of almost all goods, from truck freight transport to agricultural machinery and construction heavy equipment. Therefore, the impact of the price surge does not stop at pushing up the energy component of the Consumer Price Index (CPI). With a time lag, it also spreads to the core index, which excludes food and energy. The rise in logistics and production costs will eventually be passed on to the prices of a wide range of goods and services.

The aforementioned chief economist points out that this is a typical example of price pass-through that the U.S. Federal Reserve (FRB) cannot dismiss as a temporary price increase. Furthermore, he emphasizes that it will be a major drag on bringing the core Personal Consumption Expenditures (PCE) price index down to the 2% target.

U.S. long-term interest rates at their highest level since 2007

Against the backdrop of persistent inflation concerns and expectations of additional interest rate hikes by the FRB, selling has accelerated in the U.S. Treasury market. The yield on the 10-year U.S. Treasury note rose to the 5.1% level at one point, and the 5-year note yield also exceeded 5%, both recording their highest levels since 2007. As Brent crude oil futures rebounded to the $103 per barrel level, concerns about rising stock discount rates due to high interest rates and increased corporate borrowing costs became a factor in the decline of the S&P 500 index and the Dow Jones Industrial Average.

Political ripples ahead of the midterm elections

The diesel shock is also having a major impact on the political front. High fuel prices for trucks and agricultural machinery are hitting costs in the agricultural sector directly, and there are voices even from farmers in Iowa, where there are traditionally many Republican supporters, saying they are considering switching their support to the Democratic Party ahead of the midterm elections. Dissatisfaction with high prices could affect voters’ behavior, and trends in energy prices are becoming a factor that influences the political situation.

Up about 45% year-to-date, more than double the rise of Nvidia

While the entire stock market is under selling pressure, the ‘State Street SPDR S&P Oil & Gas Exploration & Production ETF,’ which is composed of petroleum product manufacturing and oil and gas exploration companies, is showing standout strength. The price of this ETF has risen about 45% since the beginning of the year, a performance that is more than double the 21% rise of Nvidia, a representative high-tech stock.

This ETF (Ticker: XOP) is one of the US sector ETF series provided by State Street and is listed on the New York Stock Exchange in US dollars. Compared to broad market indices like the S&P 500, it is characterized by its ability to invest specifically in companies in the upstream process responsible for exploration and production within the energy sector. While investing in a specific sector has the advantage of easily reflecting macroeconomic outlooks, it is important to note that it carries greater concentration risk than funds that invest in the entire market, and price fluctuations (volatility) tend to be higher.

Summary: Future Outlook and Investment Considerations

The diesel shock is rooted in structural factors such as refinery closures and damage to Russian refineries, and it is seen as unlikely to be resolved in the near term. Under these circumstances, the ‘SPDR S&P Oil & Gas Exploration & Production ETF’ is receiving a strong tailwind. However, it is necessary to continue keeping an eye on risks such as the US considering a ban on diesel fuel exports and the risk of economic deterioration associated with expectations of additional interest rate hikes. Also, given the high price volatility characteristic of sector ETFs, it is important to make investment decisions after fully considering the risks.

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