Benchmark diesel price heads lower as futures markets drop even more

The benchmark diesel price used for most fuel surcharges declined Monday, but it was the futures market where most of the big moves were taking place.

The weekly average retail diesel price posted by the Department of Energy/Energy Information Administration fell 6.2 cents a gallon, to $3.635. 

It’s the first decline in five weeks, and it is larger than the sum of the four increases that preceded it. The DOE/EUI price was $3.659 a gallon before the run of increases. It’s now 2.4 cents below that.

However, it is still above the most recent low of $3.458, recorded on Dec. 9.

The decline came in a market that got a jolt of bearish news Monday and may be the start of further drops.

There was a  heavy sell-off in global oil markets Monday, powered by the news that the OPEC+ group will be bringing back production beginning in April.

Ministers from key nations of the OPEC+ group met virtually Monday and announced plans to begin unwinding production cuts that have been in effect for almost two years. The cuts may have held oil prices from falling further, but the global crude benchmark for the most part has been stuck around $75 a barrel for months. In April 2023, when the group first began implementing production cuts, Brent was near $85 a barrel.

OPEC+ consists of the members of OPEC plus a group of non-OPEC oil exporters nominally led by Russia.

“Taking into account the healthy market fundamentals and the positive market outlook, they re-affirmed their decision agreed upon on December 5, 2024, to proceed with a gradual and flexible return of the 2.2 million b/d voluntary adjustments starting on 1st April, 2025, while remaining adaptable to evolving conditions,” the group said in its statement. “Accordingly, this gradual increase may be paused or reversed subject to market conditions. This flexibility will allow the group to continue to support oil market stability.”

The efforts by the OPEC+ group to withdraw production was first seen as starting down the road toward getting Brent up to $100 a barrel. That goal is well in the rearview mirror, and the group has had to mothball about 4.5 million to 5 million barrels per day of production. That is believed to be the largest amount of spare capacity the world has ever had besides the first months of the pandemic.

Numerous other starting dates for resuming higher output have come and gone, with the group deciding the market could not handle the higher level of output.

The general consensus among media coverage of the OPEC+ decision is that the increase was a surprise. A recent rise in oil prices as a result of some tougher sanctions placed on Russia by the outgoing Biden administration did give an upward kick to oil prices in January, but that gain is now out of the market.

Brent settled as high as $82.03a barrel on Jan. 15. Monday’s settlement was $71.62 a barrel, down $2.42, or 2.13%.

One potential reason some analysts cited for the increase in the face of a still-weak market: offsetting it by greater compliance with the quotas set by the OPEC+ group.

For example, the most recent Platts survey of OPEC+ production published by S&P Global Commodity Insights said the producers with quotas pumped 71,000 barrels a day above their target in January. Meanwhile, Reuters calculated that the increases that would go into effect in April would bring an additional increase of 138,000 barrels per day on the market.

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