Diesel prices have risen by 4.1 cents per gallon, reaching $3.602 on Monday. This marks the third consecutive weekly increase, and experts warn that prices could continue to climb in the coming weeks.
The latest data from the Department of Energy and the Energy Information Administration show the rise in the benchmark retail diesel price, which is now at its highest level since October.
After several weeks of steady decline, oil prices have reversed course sharply. The price of ultra-low sulfur diesel (ULSD) reached $2.5333 per gallon on the CME commodity exchange on Monday, the highest since July 7. Since hitting a recent low of $2.058 on September 10, ULSD has risen by 46.56 cents.
In just three days, ULSD prices surged by 18.26 cents, driven largely by market reactions to new sanctions on Russian oil shipments. The sanctions were imposed by the Biden administration, in collaboration with the United Kingdom, and are considered more stringent than earlier measures.
Morgan Stanley analysts believe these sanctions will further limit Russian oil supply, creating uncertainty in the global market.
S&P Global Commodity Insights reported that the sanctions target major Russian oil producers like Gazprom Neft and Surgutneftegas, as well as shipping companies, insurers, and other industry players. Rahul Kapoor, head of Shipping Analytics at S&P, stated that these new measures could significantly reduce Russian oil exports to Asia, particularly to countries like India and China.
These sanctions have contributed to the sharp increase in oil futures prices over the past two days. However, diesel prices are rising even faster than crude oil, partly due to the colder winter weather, which increases demand for diesel as a heating oil.
The difference in price between ULSD and Brent crude oil has grown significantly. On December 5, the spread was under 44 cents per gallon. By December 26, it had widened to nearly 46 cents. In the past two trading days, the gap has exceeded 60 cents per gallon.
Winter demand, combined with the new sanctions on Russian oil, is driving the price increases. In fact, a Bloomberg report noted that liquefied natural gas (LNG) prices have surpassed oil prices on an energy-equivalent basis, a rare occurrence. This shift is expected to encourage the use of dirtier fuels like fuel oil, heating oil, and diesel, which are cheaper alternatives to LNG.
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