Big drop in diesel futures Monday, but benchmark price rises again

But movements in futures prices take time to make their way to the pump. That was obvious Tuesday in two numbers.

The Department of Energy/Energy Information Administration average weekly retail diesel price, the basis for most fuel surcharges, climbed 30.4 cts/g to $5.375/g. It’s the 10th consecutive increase. 

The last three weeks of increases–those that occurred after the start of military action in the Middle East–have added, respectively, 96.2, 21.2 and now 30.4 cts/g to the price. That totals $1.47/g. The full 10 weeks of higher prices have increased the price by $1.916/g.

The latest price is the highest since $5.31/g on October 2024, 2022, when oil markets were surging on a combination of fallout from the Russia invasion of Ukraine and a general high rate of global inflation. The highest recorded price in the DOE/EIA series is $5.81/g on June 20, 2022.

The other number showing no relief at the pump, at least not yet, was the AAA average daily retail price. It rose for the 24th consecutive day, starting on March 1 (AAA posts weekend prices), coming in at $5.345/g Tuesday. That was up 6 cts/g from Monday and $1.587/g since February 28.

The big slide  in ULSD on CME was followed Tuesday by a rebound that recaptured a significant amount of that decline. 

At approximately 11 a.m. Tuesday, ULSD was $4.2779/g, which would have meant about 40% of the Monday decline had been recaptured. But at one point during the Tuesday trade, that recapture percentage was about 52%.

Refinery disruption

One thing diesel consumers don’t need now are further disruptions to supply. But in the U.S., they have one.

According to press reports, Valero Energy (NYSE: VLO) reported a fire Monday in a diesel hydrotreater at its 380,000 b/d refinery in Port Arthur, Texas. The refinery has been closed, according to media reports.

A diesel hydrotreater removes sulfur and other impurities from the fuel.

Fuel surcharges helping bottom line?

One irony in the recent surge in diesel prices is that the increase in the fuel surcharges that accompany that can be good news for large fleets, as noted in a research report published earlier this month by the transportation research team at Citi.

In a report where Citi upgraded its outlook on Knight Swift (NYSE: KNX) to buy from neutral, Citi noted the positive benefits of rising surcharges to larger carriers. 

“Fuel surcharges for truckers should blunt the medium-term impact to transports,” the Citi report said. “Furthermore, the sophistication of fuel surcharge mechanisms should advantage large carriers over smaller carriers, in our view.”

DOE Sec. Wright speaks

In an interview with CNBC from the giant CERAWeek meeting in Houston this week, Secretary of Energy Chris Wright was asked about steps the federal government could take to alleviate rising prices for both gasoline and diesel, beyond the release of oil from the Strategic Petroleum Reserve.

Wright said “there’s things we can do on refinery efficiencies. There’s a few more levers we have to pull there that we’re looking at quickly.” He offered no specifics. 

But for oil consumers, the most stark numbers, beyond the price, remain that global supply is down at least 10 million b/d in a global oil market of about 104 million b/d. As the International Energy Agency said in its March report, that number is easily the largest supply shock global markets have ever endured.

Energy Aspects, a London-based consultancy, said in a report released over the weekend that the current market is “no longer a matter of disrupted or delayed flows, but of permanent supply loss.” It said the remainder of 2026 will be needed to make up for lost supply via stronger runs, “or prices will have to rise further to curtail demand significantly.”

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