Diesel Prices Hit Three-Year Low Amid Market Uncertainty

The benchmark diesel price used for most fuel surcharges has fallen to its lowest level since October 2021. With a decline of 8.2 cents per gallon from the previous week, the average retail diesel price dropped to $3.458 per gallon, according to the Department of Energy/Energy Information Administration. This marks the largest weekly decline in almost a year, following a 9.3-cent drop on December 21, 2023. The current price is the lowest since $3.477 per gallon was posted on October 4, 2021, months before the Russian invasion of Ukraine caused a significant price surge, pushing the benchmark above $5 per gallon, peaking at $5.81 on June 20, 2022.

The recent decline reflects consistent drops in ultra-low sulfur diesel (ULSD) prices on the CME commodity exchange, though occasional increases have interrupted the overall trend. ULSD settled at $2.3042 per gallon on November 5, followed by a decline to $2.1709 on November 15. While prices spiked to $2.2749 on November 22, the general trend has been downward. Friday’s settlement of $2.1326 per gallon was the lowest since October 28. A rally on Monday brought the settlement to $2.1835 per gallon, driven more by geopolitical concerns and news of China’s plans to stimulate its economy than changes in market fundamentals.

The market currently shows little support for higher prices. This lack of bullish indicators influenced the OPEC+ decision to delay and extend the rollback of production cuts. Initially scheduled to begin in December and conclude by the end of 2025, the rollback will now start in April 2024 and stretch through the end of 2026. The OPEC+ group, including non-OPEC exporters like Russia, made this decision as oil prices remain under pressure from weak global demand.

Notable uncertainties in the market include tariffs, Iranian sanctions, and general demand forecasts. Helima Croft, managing director at RBC Capital Markets, highlighted weak Chinese demand as a critical issue. RBC’s forecasts suggest a bearish outlook, with Brent crude prices expected to average $68.50 per barrel in 2024 and slide further to $65.50 in 2025 and $62.25 in 2026. On Monday, Brent settled at $72.14 per barrel.

Saudi Arabia has reinforced the bearish sentiment by cutting its price formula for crude sales to Asia. Beginning in January, Arab Light will sell at a 90-cent premium to the Oman and Dubai crude benchmark, down from $1.70 in December. The reduction exceeded market expectations of a $1 premium, signaling a cautious outlook on future demand.

PNG Worldwide is closely monitoring these developments and their potential impact on transportation costs and global logistics trends.