Diesel Prices Surge: A Perfect Storm of Factors
The average benchmark retail diesel price has seen a significant 4.1-cent-per-gallon increase, reaching $3.602 a gallon, the highest since October. This marks the third consecutive week of price hikes, and experts predict even bigger increases in the coming weeks.
Oil Prices Turn Around Sharply
After weeks of downward drift, several factors have contributed to the sudden turnaround in oil prices. The ultra-low sulfur diesel (ULSD) price settlement on the CME commodity exchange has reached $2.5333 a gallon, its highest since July 7. Since September 10, the price of ULSD has risen 46.56 cents, with a notable 18.26-cent increase in just three trading days.
New Sanctions on Russian Oil Shipments
The recent surge in oil prices can be attributed to the decision by the Biden administration and the United Kingdom to impose new sanctions on Russian oil shipments. According to a report from Morgan Stanley, these sanctions “went further than expected” and will likely create downside risks to oil supply in the short term.
Impact on Russian Oil Producers and Global Supply
The sanctions have hit key Russian oil producers, including Gazprom Neft and Surgutneftegas, as well as a range of ships, oil service equipment companies, and insurance companies. Analysts predict that these sanctions will restrict Russian oil exports, particularly to Asia, and dent near-term oil flows into India and China.
Winter Weather Adds to Diesel Price Increase
As winter sets in, diesel prices are rising faster than crude, driven in part by cold weather. Diesel, a distillate like heating oil, is always affected by winter temperatures. The spread between ULSD and the global crude benchmark Brent has widened considerably in recent weeks, coinciding with the coldest winter in several years worldwide.
Global Energy Market Implications
The impact of the cold weather can be seen in the global energy market, where liquefied natural gas prices have risen above the price of oil on an energy-equivalent basis. This rare condition has led to a shift towards cheaper but dirtier fuels, such as fuel oil, heating oil, or diesel, which could further drive up diesel prices.
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