For the first time in three weeks, the benchmark price used for most fuel surcharges has risen.
The weekly average retail diesel price published by the Department of Energy/Energy Information Administration rose 1.8 cents a gallon to $3.567. It comes after three weeks of declines that totaled 14.8 cents a gallon.
The price of diesel in the futures market has been gradually climbing higher but in small increments compared to the volatility that has been a feature of markets for five years, pushed down at first by COVID and then boosted by the Russian invasion of Ukraine.
In the past few weeks, possibly because confusion about tariff policy makes forecasting oil prices difficult, prices generally have traded in a relatively narrow range.
However, the price of ultra low sulfur diesel on the CME commodity exchange in the past week has taken a relatively strong upward move.
Two steps by the Trump administration have contributed to that increase.
One was the move last week to increase sanctions against Iranian shipments of oil, including singling out a small Chinese refinery that had been a buyer of crude from Iran.
Second, on Monday, a threat to put a 25% tariff on any country buying Venezuelan crude brought another bullish reaction. However, much of that spike was mostly gone by the end of the day, and ULSD was up just 0.75 cents a gallon to settle at $2.2571.
Still, that is up 9.48 cents a gallon from a recent low of $2.1622 on March 13 and up more than 6 cents since Tuesday.
An article by Reuters published Friday questioned why diesel prices have not risen further, saying the price level of the fuel is “increasingly disconnected from tightening supply and demand conditions, reflecting deepening concerns over the outlook for global economic activity.”
The argument by commodities columnist Ron Bousso is that diesel prices relative to crude should be higher. He cited various statistics about inventory levels and industrial activity, which are the backbone of diesel demand.
“Everything about this supply-demand picture points toward rising diesel prices, yet the profit margin refiners make from converting crude oil into diesel has fallen well below the seasonal levels seen in recent years,” he said.
ULSD on CME at the end of January was running about 65 cents a gallon more than the cost of global crude benchmark Brent, converted into gallons. The past few days, the spread has hovered around 50 cents a gallon, though in the past several trading days it has started to move up a few cents per gallon.
A year ago, the spread was trading near 60 cents a gallon.
“The diesel price disconnect suggests that this negative sentiment – the deep uncertainty concerning the direction of global trade and manufacturing – is trumping the reality of tight supply-demand dynamics in the physical market,” Bousso wrote. “While the weakening diesel price may ultimately end up being an accurate signal – if the feared contraction in global economic activity materializes – investors may be getting ahead of themselves.”
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