Benchmark diesel price now at its highest level in almost a year after big jump

The benchmark price used for most fuel surcharges has hit its highest level in almost a year, just as oil prices in futures and physical markets are pushing against conventional wisdom by making a major retreat from their recent high levels. 

The Department of Energy/Energy Information Administration average weekly retail price soared 20.4 cents/gallon Monday, announced Tuesday, to $3.775/g. The price is now at its highest level since July 22, 2024, when it was $3.779/g. It’s the biggest one-week increase since February 12, 2024, when it rose 21 cts/g.

Retail prices as measured both by the weekly DOE/EIA price and other sources of information on what is going on at the pump levels all point to higher levels being paid by diesel consumers.

For example, the American Automobile Association posts a daily national average diesel (and gasoline) price. That AAA average a week ago was $3.567/gallon. On Tuesday, the organization posted it at $3.705/g.

Tuesday’s posting of the DOE/EIA price, effective Monday, comes after a wild two days of trading in futures markets. 

Proving the adage of “buy the rumor, sell the fact,” oil prices in general and ultra low sulfur diesel (ULSD) on the CME commodity exchange in particular climbed in the days leading up to the start of hostilities between Israel and Iran. 

The ULSD settlement rose from $2.0701/g on June 4 to sit at $2.1887/g on June 13, Monday of last week. It then rose sharply over the next four days to settle Friday at $2.5418/g, after Israel and Iran had started firing missiles and drones at each other but before the U.S. entered the war with its dropping of bombs and other ordnance over the weekend.

But given that there was no immediate sign that the battles with bombs and missiles had led to any shutdown in supply, ULSD fell 17.87 cts/g Monday to settle at $2.3631/g. But that did not capture the full sweep of the decline. ULSD in trading that began Sunday night East Coast time had risen to $2.74/g, so that the decline to the Monday settlement was about 38 cts/g.

And it kept going Tuesday, again with no sign of an interruption of Iranian oil supplies. At approximately 8:35 a.m. Eastern time, ULSD was down 10.12 cts/g to $2.2619/g, a decline of about 4.3%.

There is always a lag in retail markets. The lag is such that retail prices do not need to ultimately capture all prior increases or decreases in wholesale prices if markets reverse themselves. 

But wholesale prices do track futures prices closely, and there are retailers in the last few days who paid high prices to obtain fuel for sale in their retail operations. While they will be loath to cut their prices, there will be other retailers who will see the recent sudden declines as an opportunity to grab market share. 

Since the prospect of military action between Iran and Israel arose in recent weeks, the concern in oil markets was always that there might be a shutdown of the Strait of Hormuz. It is the narrow waterway that is the gateway to the Persian Gulf, and the route that about 20 million barrels/day of oil exports take to get oil to world markets.

The Iranian Parliament voted, in the wake of the U.S. bombing of its nuclear facilities, to shut the Strait. (The waterway is not international waters. It is controlled in part by Iran, and in part by Oman).

But with the country’s senior leaders taking no steps to enforce that Monday and into Tuesday, the fears of such a move, which could be catastrophic to oil prices, has mostly disappeared from markets. And that is what is being seen in the ULSD futures price that between the late Sunday intra-day high to the early Tuesday price has fallen about 50 cts/b. 

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