Big jump in benchmark diesel price puts price back at August levels

The benchmark diesel price used for most fuel surcharges is back up to a level not seen since August.

The Department of Energy/Energy Information Administration average weekly retail price posted for Monday – but released a day later due to the Martin Luther King Jr. holiday – rose 11.3 cents a gallon to $3.715. It has not been that high since Aug. 5, when the price was $3.755 a gallon.

It’s also the biggest one-week increase since Feb. 12, when a 21-cent gain was driven by the increase in shipping attacks in the Red Sea.

With recent increases, the DOE/EIA price has now risen 25.7 cents a gallon since a recent low of $3.458 per gallon posted on Dec. 9.

A big jump was not unexpected, given recent gains in the price of ultra low sulfur diesel (ULSD) on the CME commodity exchange.

The recent increase in oil prices – which was tempered Friday and Tuesday by declines – is being attributed almost completely to a reaction to the sanctions on Russian oil shipping that former President Joe Biden put into effect in the final days of his administration.

ULSD on CME settled Jan. 8 at $2.3507 a gallon. A little more than a week later, it rose to settle at $2.6172 last Thursday before slipping back the past few days to a settlement Tuesday of $2.5581 a gallon, a drop of 6.29 cents on the day.

Energy economist Philip Verleger, in his weekly newsletter, said of the sanctions that

“our view is that the sanctions lay the groundwork for much higher oil prices, especially since incoming Treasury Secretary Scott Bessent endorsed them at his confirmation hearings.”

A recent article in Bloomberg was more stark. “The latest US sanctions on oil tankers hauling Russian petroleum look set to cause severe disruption across the nation’s export machine, with some of Moscow’s flows at risk of a near wipeout if history is any guide,” the article published last week said.

In its monthly report released earlier this month, the International Energy Agency summed up the potential impact of the sanctions, which was targeted at two major Russian producers, Gazprom and Surgutneftegaz, more than 160 tankers, and a number of insurance companies that provide coverage for those tankers.

The Biden administration had also tightened sanctions on Iranian exports in December. ‘

The IEA said it was not adjusting its forecast for supplies from Russia and Iran “until the full impact of sanctions becomes more apparent, but the new measures could result in a tightening of crude and product balances.”

“While it is too early to fully quantify the potential impact from these new measures, some operators have reportedly already started to pull back from Iranian and Russian oil,” the IEA added.

In an interview with BloombergTV last week, Jeremy Irwin, senior oil markets analyst of Energy Aspects, said that consultancy’s estimates are that 500,000 to 1 million barrels per day of Russian crude flows into Asia will be disrupted.

The Bloomberg interviewer noted that there are higher estimates on the impact circulating in the oil market, which led Irwin to describe the market as “an evolving situation.”

“We definitely see China and India as the most affected parties” Irwin said. “And we’re seeing that in the market, of them going out and aggressively sourcing some alternative barrels.”