The benchmark price used for most fuel surcharges moved higher after nine consecutive increases with the prospect of even higher prices increasingly likely, according to FreightWaves.
The Department of Energy/Energy Information Administration average weekly retail diesel price rose 21.8 cents/gallon to $4.796/g, effective Monday and published Tuesday. The increase retraces only a relatively small part of the nine-week decline; it is still less than where the price was just four weeks ago. It is also 84.3 cents/g less than where it was in the final week before the consecutive declines.
Futures Market Surge
In the futures market, the price of ultra low sulfur diesel (ULSD) has soared in recent days. After a recent cyclical low settlement of $3.1822/g on July 2, the deteriorating situation in the Gulf and the fact that Strait of Hormuz traffic has slowed drastically has seen ULSD climb to a settlement Monday of $3.8236/g, an increase of just over 20% in six trading days. The Monday settlement is closer to the post-war high settlement of $4.6084/g set on March 20 than it is to the final settlement of $2.596/g before the war started over the weekend of February 28-March 1.
The increase in prices continued Tuesday. At approximately 11:15 a.m. EDT, ULSD was up 9.54 cents/g to $3.9190/g, an increase of 2.5%. But that marked a pullback from the intraday high which crossed the $4 mark, reaching as much as $4.0242/g.
Russia’s Refining Crisis
While the oil market focus is inevitably on what is going on in the Persian Gulf and the Strait of Hormuz, the impact from Ukrainian attacks on Russian infrastructure is a growing threat to the supplies of oil products, diesel in particular.
According to press reports, the analytics firm Kpler reported Tuesday that Russia’s volumes coming out of its refining sector had fallen to 21-year lows. Russia already had a ban on exports in place, but losing capacity means the country might need to import supplies and is even further away from lifting that ban.
| Metric | Value |
|---|---|
| Russian refinery runs | ~3.8 million b/d |
| Capacity offline due to Ukrainian attacks | ~4.3 million b/d |
| Refineries targeted by drone strikes | At least 25 |
Kpler reported that at least 25 Russian refineries had been the targets of drone strikes.
In an interview last week with CNBC, Amrita Sen of Energy Aspects said Russian diesel exports historically had been in excess of 1 million b/d. “Last week it was only 270,000 barrels per day and now it is going to go down to a negligible level,” she said.
Rising Spread Between Crude and Diesel
Diesel is moving higher at a faster pace than crude. A comparison of the front month settlements between Brent crude, the world benchmark, and ULSD on CME produced a spread of about $1.84/g Monday. That is one of the highest levels since the war began.
On the last day of trading before the war commenced, that spread was about 87 cents/g.
The widening spread reflects the acute shortage of diesel relative to crude, driven by both the Russian refining outages and the Strait of Hormuz disruption. For commodity traders and procurement teams, this signals that diesel premiums are likely to remain elevated as long as these supply-side shocks persist. The combination of geopolitical risk and infrastructure damage means that any near-term relief in diesel prices is unlikely without a de-escalation in both the Persian Gulf and the conflict in Ukraine.
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