Diesel Prices on the Rise as Winter Weather Looms
As the year comes to a close, the Department of Energy’s average retail diesel price has reached $3.503 a gallon, a 2.7-cent increase from the previous week. This marks the highest price in four weeks, despite being the fifth lowest recorded in 2024.
A Year of Volatility
Looking back at the past 52 weeks, the DOE/EIA price has declined 37.3 cents per gallon from its January 1 level of $3.876 a gallon. However, just a few weeks later, the price peaked at $4.109 for two consecutive weeks. This week’s price is down 60.6 cents from that level, highlighting the relative stability of the recent market alongside the overall weakness of prices this year.
Winter Weather Takes Center Stage
But the distillate market is about to get a significant boost from one of its most basic fundamentals: winter weather. Long-range forecasts are predicting extremely cold January weather in the U.S. and Europe, sending traders scrambling to push up prices. As a result, ultra low sulfur diesel (ULSD) rose 5.47 cents a gallon to settle at $2.2995 a gallon, a gain of 2.44%. This marks the highest settlement since November 5.
Natural Gas Prices Soar
Meanwhile, natural gas for delivery at Louisiana’s Henry Hub rose 12% to settle at $3.936 per thousand cubic feet (Mcf), a gain of 42.2 cents. If prices in this range hold, they will be the highest continuous prices in two years. Since a low of $1.575 per Mcf on March 26, the natural gas price on CME has risen almost 152%.
Low Distillate Inventories
U.S. inventories of all non-jet distillates are relatively low for this time of year, according to DOE data. The most recent report for the week ended December 20 put total non-jet distillate inventories at 116.5 million barrels. While comparisons to five-year averages are skewed by the pandemic, inventories are looking low entering into what promises to be a very cold January.
What’s Ahead for Diesel Prices?
The combination of low distillate inventories and extreme cold weather forecasts suggests that diesel prices may be leading the market higher in the coming weeks. As the market adjusts to these new fundamentals, it’s likely that diesel prices will continue to rise, making it a challenging time for logistics and transportation companies.
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