Strait of Hormuz concerns: diesel benchmark sets a record gain

Given the sheer size of the latest increase, what has happened in prior weeks seems almost irrelevant. But the big upward move marks eight consecutive weeks of increases. The price is now $1.40/g higher following that string of higher prices.

Not since December 5, 2022, when the benchmark was $4.967/g, has the DOE/EIA price been this high. 

The increase comes as oil markets made a sharp reversal Tuesday, with diesel having made some of that shift a day earlier. 

At approximately 10:40 a.m. EDT Tuesday, ultra low sulfur diesel (ULSD) on the CME commodity exchange was down 14.01 cts/g to $3.4465/g, a drop of 3.91%. 

The ride has been wild between Monday and Tuesday. 

Although ULSD settled Monday at $3.5866/g, down 3.58 cts/g on the day, it traded as high as $4.4715/g. And mid-morning Tuesday, ULSD had traded as low as $3.3047/g, for a swing of about $1.17 between the high price and low price beginning with the start of Monday trading which actually occurred Sunday at 6 p.m. Eastern time. It was those early hours Sunday evening U.S. time when prices soared to their high levels. 

Such volatility could be expected in a combination of uncertainty about the level of transit across the Strait of Hormuz and statements by President Trump that the Iran War might soon be over. 

But reporting out of S&P Global Energy did not give much hope that restricted supplies will soon be in the rearview mirror. 

According to a “factbox” produced by S&P Global Energy, only four ships transited the Strait of Hormuz on March 8. On February 28, that number was 91. (There have been reports of ships turning off their transponders, which could raise questions about the actual number of ships going through the waterway).

The factbox also quoted a report from Goldman Sachs from Monday that said traffic through the Strait of Hormuz was 10% of normal.  

S&P Global Energy has a service, Commodities at Sea, which said Persian Gulf loadings were 3 million barrels on Sunday. The normal daily level is closer to 20 million b/d.

That would line up with other reporting from S&P Global Energy. It reported that last week, about 17 million b/d of crude and products failed to sail out of the Persian Gulf, driven in part by production shutdowns in Iraq and Kuwait. 

Those countries, with their storage filling up and the export routes either totally shut or limited, shut in production. The longer-term concern is that shut-in wells do not come back as if flipping a light switch. They take varying degrees of time to return to their pre-shutdown status, a process that can be measured in weeks or months, not hours. 

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