The benchmark price of diesel used for most fuel surcharges moved higher Monday but is lagging a broader oil market that is screaming higher on the back of even more fears of increased Israeli-Iranian air attacks that could impact the Iranian oil industry.
The Department of Energy/Energy Information Administration average retail weekly diesel price rose 4 cents a gallon Monday to $3.584. It was the third consecutive weekly increase but dwarfed the relatively small upward moves of the two prior weeks, which were 1.3 and 0.5 cents a gallon, respectively.
But in the futures market for ultra low sulfur diesel on the CME commodity exchange, the moves have been far more dramatic.
Monday’s settlement of $2.3926 a gallon marked the highest ULSD settlement since Aug. 12, when the price settled at $2.4065. The one-day gain Monday was 8.35 cents, and that wasn’t even the highest single-day gain in the past week; Tuesday’s settlement was up 11.26 cents a gallon, the second-highest one-day rise this year.
There is no loss of supply yet in the Middle East. There actually has been an increase, with news reports Monday saying Libya’s oil production, hindered recently by the latest political standoff in that country, had risen above 1 million barrels a day for the first time in two months. Those reports said the political battle between the forces governing the eastern and western portions of the country had recently cut the country’s output to 450,000 barrels per day.
But that is overshadowed by the market’s focus on what might occur next between Israel and Iran. The latest move was Iranian missile attacks on Israel that were mostly intercepted by Israeli missile defenses. But some made it through.
Helima Croft, managing director and global head of commodity strategy at RBC Capital Markets, said in an interview Monday on CNBC that there are paths of Israeli retaliation that could have an impact on oil supplies.
“There are some very critical oil infrastructure sites that if they were targeted, like Kharg Island, 90% of Iranian oil exports need that island,” Croft said in the interview. “Significant storage is held on that island. Obviously, that would be very impactful for oil prices and also would lead to questions about, what would Iran’s response mechanism look like?”
In a widely noted comment on oil-focused social media, ANZ Research said it saw a “direct attack on Iran’s oil facilities as the least likely response among Israel’s options.”
Should there be a loss of supply as a result of an Israeli attack, OPEC’s spare capacity is estimated to be about 7 million barrels a day, one of the highest in recent history.
Croft said that capacity is a factor in the market in case of a disruption.
“The most significant real spare capacity is sitting in Saudi Arabia,” Croft said in the CNBC interview. “And the question is, would Saudi Arabia be called on by the White House to immediately surge production?”
Croft said Saudi Arabia, upon receiving such a request, might not necessarily move quickly to agree to such a request. “Would Saudi Arabia and the rest of OPEC say first, ‘We would like to see the extent of an outage and the duration’?” she said. “They do not want to get caught in the crossfire of this conflict.”
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