Issue #14 | October 8, 2026

You pull into a truck stop somewhere in Texas and see a number that makes you look twice: diesel is selling for about $6 a gallon.

That's obviously bad news if you drive an 18-wheeler. But what if you drive a Toyota? What if you never buy diesel at all? More importantly, what if you're trying to buy a house?

The obvious explanation would be oil. Oil gets expensive, diesel gets expensive. Except that's not the whole story this time.

Crude oil prices have certainly risen, but diesel has risen even faster. The national average recently crossed $6 and reached a record near $6.53 a gallon. Even more remarkable is what's happening inside the refinery. The margin for turning crude oil into diesel—the so-called "crack spread"—has exceeded $100 per barrel. Normally, it's closer to $20–$30.

The problem isn't just the price of oil. Something has happened to the world's ability to turn oil into diesel.

Ukraine has spent much of this year attacking Russian refineries. Russia has 32 major refineries and historically was one of the world's largest producers of refined petroleum products. By June, Russian refinery throughput had fallen to its lowest level in more than 20 years, with diesel production estimated to be down nearly 30%. Russia eventually did something extraordinary for a country that once exported roughly half of its diesel and gasoil production: it banned diesel exports.

At almost the same time, another disruption was unfolding in the Middle East. Iran's crude exports collapsed under the U.S. naval blockade, while fuel shipments through the Strait of Hormuz remained constrained.

Normally, high prices send a signal: make more.

Diesel has a problem. Several U.S. refineries have closed in recent years, including one here in Houston. Existing refineries have been running near their practical limits, while distillate inventories remain unusually low. Building major new refining capacity takes years, not months.

You can't build a refinery next Tuesday.

So the world has plenty of people who still need diesel, but a refining system that can't quickly produce much more of it. That's how disruptions thousands of miles away can eventually appear as a $6 number on a pump in Texas.

And that's where the story gets more interesting.

We talk endlessly about electric vehicles, batteries and the energy transition. Then look at what actually moves the physical economy.

The truck bringing groceries to H-E-B runs on diesel. So does the excavator digging a foundation, the bulldozer clearing a subdivision, the tractor harvesting crops and much of the equipment building our roads and infrastructure. Trucks carry nearly three-quarters of America's domestic freight tonnage.

And diesel demand is stubborn. A trucking company can't stop delivering groceries because diesel went from $4 to $6. A farmer can't simply leave the crop in the field. A construction company can't replace its fleet of heavy equipment next week because fuel became expensive.

Somebody pays the extra $2.

Eventually, that additional cost moves downstream, finding its way into the price of the things we buy.

Diesel itself barely registers directly in the consumer price index because most households don't buy much of it. But households buy almost everything diesel moves.

Food, building materials, furniture, appliances and packages all have transportation costs embedded somewhere in their prices. Construction equipment burns fuel. Farms burn fuel. Warehouses and supply chains depend on trucks. The cost doesn't arrive everywhere at once; it works its way through the economy.

Producer-price data are already showing some of that pressure. Diesel fuel prices jumped 24.1% in August alone, while truck freight transportation was up 14.3% from a year earlier.

The key is expectations.

The Fed doesn't have to wait until every dollar of $6 diesel has appeared in consumer prices before worrying about it. Monetary policy works with a lag, and so does inflation. If the Fed sees another inflationary wave moving through the supply chain, it has to decide whether to hold rates steady or raise them further to cool demand elsewhere in the economy.

The Fed raised its short-term target rate by a quarter point in September. But there's another market that doesn't even have to wait for the Fed.

Suppose I ask to borrow $100,000 from you for ten years. I'll pay you interest every year and return your $100,000 at the end.

Would you lend it to me at 3%?

Maybe. But before answering, you'd want to know what that $100,000 is likely to buy when I finally give it back to you. If you expect years of higher inflation, you'll demand more interest to compensate for the purchasing power you're risking.

A bond investor isn't just betting on interest rates. He's betting on the future value of money.

Diesel isn't the only thing those investors are watching. Federal borrowing, Treasury supply, Fed policy and global demand for U.S. debt all matter. But $6 diesel adds another inflation threat to a market already trying to decide how much compensation investors should demand for lending money years into the future.

The 10-year Treasury yield touched 5.34% on October 1, its highest level since 2002.

Thirty-year mortgage rates tend to follow longer-term bond yields, particularly the 10-year Treasury. As Treasury yields climbed, the average 30-year mortgage rate reached 7.28%.

Think about the journey we've just taken. A Ukrainian drone hits a Russian refinery. Russian diesel production falls and exports are restricted. Conflict disrupts another major oil-producing region. Global refining capacity can't quickly respond. Diesel reaches $6. Transportation and production costs rise. The Fed sees another potential source of inflation coming through the system. Bond investors look ahead and demand greater returns for the risks they're taking.

Then somewhere in Texas, a homebuyer opens a mortgage quote and sees 7.28%.

Everything is connected—and the market can transmit a price shock halfway around the world with remarkable efficiency.

Higher energy prices have historically been good news for Texas. More money flows through the energy business, refining margins improve, drilling becomes more attractive, and those dollars circulate through an economy built around producing, processing and transporting energy.

But Houston homeowners and homebuyers are standing on the other side of this trade.

Our housing market was already slowing before the latest rate shock. Houston single-family sales were down 11.5% year over year in August, the median price slipped 1.5%, and active listings reached an all-time HAR record earlier this summer.

That means buyers have more negotiating leverage than they've had in years. Sellers are competing harder. Builders are offering incentives. On the surface, conditions are becoming increasingly favorable for someone looking to buy.

The house is getting easier to negotiate. The money to buy it is getting more expensive.

That's the contradiction developing in Texas. The same energy economy that can put money into one side of our city can create inflationary pressure that takes purchasing power away from homebuyers on the other.

Most homebuyers are watching mortgage rates and waiting for them to fall.

That's watching the scoreboard instead of the game.

If you want to understand where mortgage rates could go next, watch what is happening before it reaches the mortgage market: diesel prices, inflation, Fed expectations and the 10-year Treasury. Right now, those signals aren't giving the housing market the rate relief it wants.

But there is another side to that story. Higher mortgage rates are pushing buyers to the sidelines at the same time Houston inventory has increased and sales have fallen. That creates something buyers haven't had much of during the past several years:

Leverage.

A buyer who can afford today's payment is negotiating against fewer buyers, more inventory, motivated sellers and builders offering incentives. If rates fall, much of that negotiating leverage could disappear as buyers return to the market. If rates keep climbing, prices could fall further but the higher payment could still make the house less affordable.

Waiting for a lower mortgage rate sounds like a safe move. But with the forces pushing on rates today, there is just as much reason to believe rates could go up as down.

Guessing where rates go next isn't the bet. Waiting is the bet.

Waiting means betting that lower rates will arrive before today's negotiating leverage disappears or before higher rates reduce your purchasing power even further. The best time to negotiate the price of an asset is rarely when everybody else wants to buy it.

Keep your eyes on the numbers. The crowd watches the mortgage rate. The insider watches what happens before the mortgage rate moves.