Diesel prices are maintaining a steady decline despite appearing relatively stable in recent weeks. While weekly changes have been moderate, the broader two-month trend reflects a continued bearish outlook for diesel markets. According to the Department of Energy/Energy Information Administration (DOE/EIA), the weekly average retail diesel price fell 1.8 cents to $3.476 per gallon. This marks the second-lowest price since October 2021, following a brief rise of 3.6 cents last week.
The downward trend in ultra-low sulfur diesel (ULSD) prices is also apparent on the CME commodity exchange, where Monday’s settlement saw a 54-basis-point drop, pushing the price down roughly 4 cents compared to the previous week. Over the past 10 weeks, DOE/EIA prices have fallen by 15.5 cents per gallon, reflecting sustained pressure in the diesel market.
Dollar Strength and Other Factors Driving Declines
One of the primary drivers of falling diesel prices is the recent surge in the value of the U.S. dollar. The DXY index, a key measure of dollar strength, has reached its highest level in about two years, climbing to nearly 108. Since commodities like diesel are priced in dollars, a stronger dollar typically leads to lower prices for those commodities.
Other contributing factors to the decline include:
- Weak Chinese Demand: Fluctuations in Chinese economic data have periodically impacted global fuel prices, though overall demand remains subdued.
- OPEC+ Production Increases: The OPEC+ group, comprising OPEC members and other major oil exporters like Russia, produced 40.58 million barrels per day in November—a notable increase of 320,000 barrels per day from the previous month. This higher production level contributes to oversupply in the market.
- Minimal Geopolitical Impact: Despite ongoing tensions in the Middle East, oil production has remained largely unaffected.
OPEC+ and U.S. Production Trends
OPEC+ has faced challenges in managing global oil supply. While the group recently delayed planned supply increases from January to April, current production levels already exceed market needs. For instance, November’s production levels significantly outpaced earlier forecasts, complicating OPEC+ efforts to stabilize prices.
In the U.S., crude oil production has surged to record levels, contradicting predictions of a near-term peak. For the week ending December 13, U.S. output exceeded 13.6 million barrels per day for the second consecutive week, a milestone never reached before. This increased production further contributes to global oversupply, adding downward pressure on diesel prices.
The diesel market’s relative stability belies the cumulative impact of these factors. As market conditions evolve, the interplay of dollar strength, production levels, and demand fluctuations will continue to shape pricing trends.
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