The benchmark diesel price used as the basis for most fuel surcharges has fallen to its lowest level since before Russia invaded Ukraine in February 2022, even as prices climbed to start the week on the back of an actual loss in global production.
The Department of Energy/Energy Information Administration average weekly retail diesel price fell to $3.651 a gallon Monday, a decline of 3.7 cents. It was the seventh consecutive decline in the price. The benchmark has fallen 21.4 cents per gallon over that time.
Since a high of $4.545 a gallon recorded Oct. 23, 2024, the DOE/EIA diesel price is down about 19.6%.
It also broke through the previous 2024 low of $3.658 recorded in June. That means that to find a DOE/EIA price lower than Monday’s number, the search has to go all the way back to the first published price of 2022, before the invasion of Ukraine set off an upward price spiral that reached $5.623 in May 2022, just a few months after the invasion. Prices since then have trended downward, though with some periods of increases.
Recently, upward price moves linked to tensions in the Middle East have taken place against a backdrop of the reality that the main combatants in shooting wars – Israel, Hamas, the Houthis in Yemen – did not come from areas with significant oil production. (Yemen is a minor producer.) The threat of Iran and its output of roughly 3.1 million barrels per day becoming part of a wider war has provided an upward price push at several points in recent months. But those increases have not lasted, presumably because no production has actually been threatened.
But what happened Monday was a significant increase in the price of oil as a result of a steep decline in Libyan output.
According to media reports, the government that controls just the eastern part of the divided country halted exports out of its ports as part of an ongoing dispute with the forces that govern Libya’s western half.
Futures markets Monday reacted to the Libyan news that developed over the weekend and into Monday. Ultra low sulfur diesel on the CME commodity exchange climbed 4.83 cents per gallon to $2.348, an increase of 2.1%. It was the highest settlement in seven trading days and came just three trading days after recording the lowest settlement of the year at $2.2497.
Libya has recently been producing 1.1 million to 1.2 million barrels per day, and much of the export capacity is out of the eastern portion of the country.
“These are ‘real’ barrels that could be lost, so that would tighten the physical market for as long as it lasts,” Giovanni Staunovo, a commodity analyst at UBS Group AG, was quoted as saying by Bloomberg.
The upward move did not follow through Tuesday. As of approximately 9:30 a.m. ET, ULSD on CME was down about 1.15%.
In other developments, markets last week showed little reaction to the weekly EIA report that showed ULSD inventories in the U.S. declining to 112.4 million barrels from about 116 million a week earlier. Those inventories would be expected to be rising at this time of year.
However, 112.4 million barrels is still more than the third week of August the past two years, when inventories were at 100.7 million and 107 million barrels, respectively.
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