Diesel benchmark moves above $5/g for first time since 2022

The diesel retail market is apparently volatile enough that there is a gap between the DOE/EIA price and the AAA average daily retail diesel price. That was posted for Tuesday at $5.044/g.

Ultra low sulfur diesel on the CME commodity exchange settled at $2.596/g on February 27, the last day of trading before the U.S. and Israel launched their coordinated attack on Iran, followed by Iranian counterattacks. The highest settlement since then was recorded Friday at $4.0147/g, an increase of $1.4187/g. 

The DOE/EIA price recorded on March 2 was $3.897/g. That would not have reflected any movement in the price from the Iran war, since it had just begun. But in the last two weeks, that retail number  has increased by $1.174/g, lagging the futures increase by about 24.5 cts/g. That gap may look large but given the enormous pace of futures price increases, it actually has captured much of the futures market increase rapidly. 

Futures market heading higher Tuesday

A sharp drop in the ULSD price on CME Monday has been followed by an increase Tuesday that wiped out the Monday declines and shot higher than that. At about 10:40 a.m., ULSD on CME was up 20.44 cts/g, a gain of 5.33%, to $4.0419/g.

The focus in the market remains on the Strait of Hormuz. But it is important to note what is occurring behind that bottleneck waterway, where the inability to move crude to market is resulting in continued shutdown of production.

Recent news reports quoted Rystad Energy, a well-respected energy analytics firm, as saying that the Middle East has lost more than 12-million barrels/day of production since “Iran effectively closed the Strait of Hormuz.” 

Rystad estimated that number at about 7% of global petroleum liquids demand. It also said the worst-case scenario was a decline to about 6 million b/d of remaining production, which would be about a 70% decline from pre-war Middle East output levels.

The Rystad report was highlighted by the OPIS energy news service in a report Monday.

The report said the 14 million b/d of Middle East output that remains operating is “fragile.”

“About 1.5 million b/d from Kuwait and Iraq is holding only because domestic refineries are still running; as storage fills, output will likely be cut further,” the OPIS report said. “Another 6.5 million b/d depends on bypass pipelines — the UAE’s ADCOP line to Fujairah and Saudi Arabia’s East-West line to Yanbu — infrastructure that has already been targeted in attacks and constrained by tanker availability.”

The Yanbu report is on the Red Sea at the western terminus of a pipeline that crosses Saudi Arabia, so tankers loading there do not need to transit the Strait of Hormuz.

Trying to find another way

But necessity is the mother of invention. Bloomberg reported that Iraq is “in talks with Iran to allow some of its oil tankers to pass through the Strait of Hormuz,” quoting Iraqi oil minister  Hayyan Abdulghani.

The Bloomberg report said Iraqi production is down to about 1.5 million b/d to 1.6 million b/d that is mostly being consumed by domestic refineries and for electricity generation. Its pre-war production was near 4.2 million b/d.  

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