Benchmark Diesel Price Up for Third Week as Oil Futures Markets Soar Again

The benchmark diesel price has risen for the third consecutive week, climbing 4.1 cents a gallon to $3.602, its highest level since October. This upward trend coincides with a surge in oil futures markets, driven by geopolitical events and seasonal factors. The weekly Department of Energy/Energy Information Administration price is now the highest since October and the third consecutive week of an increase.

The latest broad non-oil factor pushing prices higher is the U.S. dollar's reaching its highest value in about two years. The DXY index, reflecting the strength of the dollar, has climbed toward 108 from about 107.6 just in the past day. Commodities denominated in dollars tend to move in the opposite direction of the dollar's strength.

Analysts continue to cite weak Chinese demand figures, strong production figures from OPEC+ and non-OPEC countries, and the failure of Middle East tensions to impact production as reasons for the gradual decline in prices. However, the latest news on the production front is that the OPEC+ group produced 40.58 million barrels of oil a day in November, a jump of about 320,000 barrels a day from a month earlier. This increase, along with the failure of Middle East tensions to have any impact on production, undercuts the impact of the decision of the OPEC+ group to dial back its plans to begin increasing supplies next month.



The most recent bullish spur has been the decision by the Biden administration, along with the United Kingdom, to impose new sanctions on Russian shipping of oil on top of what already was in place. These sanctions went further than expected, targeting key Russian oil producers, ships, oil service equipment companies, and insurance companies, among others. This move is expected to dent near-term Russian oil flows into Asia, particularly India and China, creating downside risks to oil supply and contributing to the rise in oil prices on futures markets.

The overall rise in oil prices does not capture what is going on with diesel, which is outpacing crude. Winter is playing a part in the increase as well, with diesel prices rising faster than crude. Diesel is a distillate, like heating oil, and cold weather is always a factor in the strength or weakness of diesel in the winter. A comparison of the front-month spread between ULSD and the global crude benchmark Brent shows that the spread has widened considerably in recent weeks, coinciding with a winter that so far is the coldest in several years worldwide.

In conclusion, the benchmark diesel price trend aligns with broader oil market dynamics, with both diesel and crude oil prices surging in recent weeks. Geopolitical events, such as the new sanctions on Russian oil, and seasonal factors, such as the cold winter, are driving the surge in oil futures markets. As the benchmark diesel price continues to rise, investors should keep an eye on these factors and their potential impact on the oil market.