The weekly benchmark diesel price used as the basis for most fuel surcharges made its largest upward move since January and the third-largest increase since the start of 2024.
The price published by the Department of Energy/Energy Information Administration effective Monday rose 10 cents/gallon to $3.571/g. It’s the biggest increase since January 20. There was only one larger upward move in 2024.
Retail prices lag movement in futures prices (though wholesale prices react quickly to changes in the futures market). Given that, attributing the higher benchmark to the increases in futures prices spurred by the Iran-Israel war might not be accurate.
Before oil and diesel prices started to move higher on the back of Israel-Iran military action, there had been a strong upward push in the price of ultra low sulfur diesel (ULSD) on the CME commodity exchange that appears to be the primary cause of this week’s big increase in the benchmark.
From a settlement of $2.0445/g on June 2, ULSD climbed as high as a settlement of $2.2053/g on Wednesday. It dipped slightly Thursday, but roared ahead by 17 cts/g on Friday, after the military action between Iran and Israel commenced.
ULSD Monday rose 3.46 cts/g, coming on a day when crude prices fell due to a perception in the market that the war’s impact on oil supplies might be limited.
Diesel’s upward move Monday in contrast to the decline in crude could reflect the fact that if any Iranian supplies are impacted by the war, its crude is a heavier grade that would yield more diesel than gasoline. The front-month spread between ULSD and Brent Monday was just under 65 cts/g, the highest it had been since February.
With no signs of the conflict easing Tuesday, ULSD at approximately 10 a.m. was up 7.56 cts/g to $2.4689, a gain of 3.15%. If it settled there, it would be the highest ULSD settlement since February 20.
The American Automobile Association’s daily estimate of the national average diesel price Tuesday, released in the morning, was not far off from the DOE/EIA price. That price posted Tuesday by AAA was $3.567/g. That was up more than four cents from Monday’s level of $3.524/g and up slightly more than 6 cts/g from a week ago.
Going right to the source, a review of the downloadable pump prices at Pilot Flying J shows a clear upward trend, but not across the board. The increases could also reflect local conditions not tied to the broader diesel market.
But some of the increases in effect Monday compared to Friday were significant. A 41-cent increase between Monday and Friday was recorded at Grand Prairie, Texas; prices were up 25.1 cents in White Hills, Arizona.
But at the same time, a comparison of prices downloaded Tuesday compared to Friday show some stations not changing their prices during that time, though increases of 10 cts/g and 20 cts/g are heavily represented in the data.
Helima Croft, the managing director and global head of commodity strategy at RBC Capital Markets, said on CNBC Monday that the decline in crude prices that day reflects that “markets decided that the Strait of Hormuz and other critical export infrastructure is not at risk.” She did note that there have been energy infrastructure targets hit in both countries, including Israel’s Haifa refinery. At a capacity of 197,000 b/d, Haifa is Israel’s largest refinery but a capacity at that level is not particularly big by international standards.
But a Reuters report Tuesday was more dire, saying that Iranian oil exports have been severely affected by the ongoing military action.
“Iran’s oil exports appear to have essentially ground to a halt in recent days,” the Reuters report said. “Total Iranian crude and condensate oil exports this week are currently forecast to reach 102,000 bpd, compared with a weekly average of 1.7 million so far this year, according to analytics firm Kpler.”
The report also said exports from Kharg Island, which normally handle about 90% of Iran’s oil exports, “appear to have completely halted since Friday.” It cited tanker tracking data as the source for that conclusion.
Even as oil prices were climbing anew on Tuesday, the monthly report of the International Energy Agency once again reduced its estimate on global oil growth in 2025.
The IEA’s estimate, released Tuesday, now is that global oil demand will rise by 720,000 b/d in 2025. A month ago, that estimate was 740,000 b/d. Outside of the pandemic, global oil demand growth for years has been checking in at more than 1 million b/d, and sometimes hitting 2 million b/d.
The IEA also isn’t suggesting that 2025 is an outlier. It held its estimate for 2026 growth at 740,000 b/d.
The IEA does not forecast total future supply, given that OPEC would be expected to adjust its output depending on market conditions.
But it did say that May global supply was 104.96 million b/d, and that full-year demand in 2025 was expected to be 103.76 million b/d, an imbalance favoring buyers who are suddenly watching prices climb.
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