On a day marked by a significant drop in oil futures, the U.S. benchmark diesel price, critical for fuel surcharges, saw a modest rise. According to the Department of Energy/Energy Information Administration (DOE/EIA), the average retail diesel price climbed 2 cents to $3.573 per gallon. This increase follows a recent decrease of 7.8 cents after four consecutive weeks of gains. Meanwhile, the futures price of ultra-low sulfur diesel (ULSD) on the CME recorded a notable one-day drop of 10.95 cents per gallon, marking one of the most substantial declines in recent months.
Geopolitical Developments and Market Reactions
The volatility in oil prices is heavily influenced by geopolitical developments. The recent decline in ULSD prices, as well as broader crude benchmarks, was fueled by clarity around Israel’s retaliatory attacks against Iran. Earlier speculation had included the possibility that Israeli strikes might target Iranian oil facilities or sites contributing to Iran’s nuclear capabilities. However, with confirmation that such infrastructure would remain untouched, the market’s initial fears of supply disruptions dissipated.
The futures market had been positioned for a possible supply impact. Bloomberg reported that options bets were placed, expecting a price spike should Iranian oil facilities come under attack. However, as the attacks avoided Iran’s oil infrastructure, the market did not experience the anticipated surge. The CME’s West Texas Intermediate (WTI) contract closed at $67.38 per barrel, a sharp one-day drop of $4.40, the lowest settlement since September 11. This collapse rendered options worthless, marking an end to about 800,000 Brent crude call options that had been set to expire, which would have only profited in a price increase.
Brent crude prices reflected this shift, declining by $4.63, or 6.09%, representing the largest single-day drop since July 2022. Amrita Sen, research director at Energy Aspects, noted that the market’s bearish outlook rests heavily on projected output increases from non-OPEC nations like the U.S., Brazil, Guyana, and Canada. Sen highlighted that these forecasts might be overly optimistic, particularly given underperformance from these countries in recent months. While analysts had expected non-OPEC production to add approximately 1 million barrels per day to the global supply this year, actual increases have fallen short, totaling just over 300,000 barrels daily due to slower-than-anticipated gains in U.S. and Brazilian output.
U.S. Production Trends
The U.S. has seen fluctuating oil production figures, with monthly and weekly data showing slight variances. According to the EIA’s monthly report, the U.S. ended 2023 with production levels of 13.308 million barrels per day, with July’s figure at 13.205 million barrels. However, recent weekly estimates suggest that U.S. production has reached a record 13.5 million barrels per day. Whether this peak figure holds will be confirmed by the next EIA monthly report due in December.
In addition to U.S. figures, a bearish factor entered the scene last week with higher-than-expected output from Libya. Following a resolution between opposing factions in the east and west of the country, Libya’s National Oil Corp. reported a daily output of 1.327 million barrels, the highest in several years. This resurgence in Libyan production has exceeded initial estimates, adding a new variable to the supply side of the market.
As prices settle following the restrained Israeli actions, this mix of geopolitical dynamics, domestic production levels, and the return of Libyan oil continue to influence the diesel and crude oil markets. The price shift observed in ULSD futures and Brent crude highlights how quickly oil markets can respond to international developments and underlines the broader implications for fuel-dependent industries.
Source:
https://www.freightwaves.com/news/benchmark-diesel-price-rises-against-backdrop-of-falling-futures
Leave a Comment