Diesel futures and retail prices power higher, outstripping gains in crude

The budding Middle East war is sending diesel prices soaring in the futures market, with the usual lagging retail market already posting significant gains.

The Department of Energy/Energy Information Administration average weekly retail diesel price, used as the basis for most fuel surcharges, rose 8.8 cents/gallon to $3.897/g, effective Monday, published Tuesday. It is the highest price since July 8, 2024, when it was $3.865/g.

That price now has risen seven consecutive weeks, adding 43.8 cts/g to the benchmark.

But the latest increase, given the usual lag between futures price movements and changes at the pump, would have been reflecting the increases in the price of ultra low sulfur diesel (ULSD) recorded before the joint U.S-Israel attack on Iran and that latter country’s retaliatory steps. The last two days of trading in futures markets and the increases in the pump that can be seen already are signaling gains in the DOE/EIA price have a long way to go.

The price of ULSD on the CME commodity exchange rose Monday to a settlement of $2.9004/gallon for barrels delivered in April. That was a gain of 30.44 cts/g from the April settlement on the prior Friday.

Soaring futures prices Tuesday

But it was trading on Tuesday that led to even more eye-popping numbers.

ULSD settled at $3.1869/g, up 28.65 cts/g, an increase of 9.88%. The settlement was considerably less than the high price of the day, recorded at $3.3692/g.

ULSD settled at just under $2.36/g on February 2, the first trading day of the month. With Tuesday’s settlement, ULSD is now up 82.71 cts/g since then.

Retail price increases were most visible immediately in the AAA daily average price for diesel. The AAA national average Friday was $3.758/g. By Tuesday morning, AAA published a price of $3.891/g, which would be reflecting prices from Monday.

Patrick DeHaan of the Gas Buddy price service, who is on X as @GasBuddyGuy, posted on his feed a list of the largest single-day increases in the average retail price of diesel since 2005. Four of the top five occurred in 2022, when Russia invaded Ukraine. The largest was 22.2 cts/g on March 4 of that year.

His calculation on the current average national price of diesel, posted Tuesday morning, put the number at $3.863/g, just under the AAA price. He said it was the highest price since May 25, 2024 “and will head toward $4/gal.”

Developments in a key passage

Markets have been sent higher by numerous energy-related factors tied to the Middle East war. At the top of the list is likely to be the prospect of restrictions to shipping in the Strait of Hormuz, where 20% of the world’s oil supply can pass through.

Those shipping interruptions can occur either through Iranian action–one Iranian military leader declared the strait is closed–while insurer resistance to underwriting marine movement through there, along with company attempts to avoid the waterway, make a closure somewhat moot.

Another leading Iranian official, Ebrahim Jabari, said ships crossing through the strait would be “set ablaze,” according to The Wall Street Journal.

The risk to shipping through the strait has started to kick back into production. Iraq, according to news reports, is starting to shut in production as its own storage is full and it can not export oil to world markets.

Why diesel is more important

Philip Verleger, a long-time energy economist, frequently focuses in his writings on  diesel as a driving factor in oil markets that do not receive the attention it should.

In a Substack posting Tuesday, he cited several points about diesel prices since military action began: European natural gas (which can be substituted for diesel in some applications, and vice-versa)  has been up as much as 45%; European diesel is up 17%; U.S. Gulf Coast diesel is not up as much as the New York harbor, whose price is represented by the CME price, but is still up 12%; and benchmark crude prices at the time of Verleger’s post were up about 6%, lagging well behind diesel.

“Diesel prices increased for several reasons,” Verleger wrote. “First, US Gulf Coast refiners have been supplying Europe with the fuel. Second, since January 1, EU sanctions on Russia have prohibited the import of diesel refined from Russian crude. This rule limits diesel exports from India to Europe.”

Verleger said global markets for diesel were ”already tight. Now, the Iranian attacks are forcing refineries to shut down, causing further tightening.”

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