A move higher in the benchmark diesel price used for most fuel surcharges may prove short-lived, because oil futures markets have resumed their downward slide.

The Department of Energy/Energy Information Administration average weekly retail diesel price rose 3.5 cents a gallon, effective Monday, to $3.863. It was only the fourth increase in the past 17 weeks. 

It came after oil markets showed some reaction in the past two weeks of trading to the continued interruption in shipping through the Red Sea and the Suez Canal, a disruption that forces oil to stay on the water longer than it would have otherwise. In classic economics analysis, that would be considered bullish for the price of any commodity, because it effectively works to lock oil into inventories for a longer period of time. 

There have been days in the past few weeks when the impact of that was seen as a factor in higher oil prices. But overall, oil markets clearly are not accepting a bullish case for oil related to the Red Sea issues.

Since the start of the year, bullish reaction in the price of Brent crude, the global benchmark, has resulted in one-day gains of as much as $3.11 a barrel, as well as daily increases of $1.51, $1.93 and $1.14 a barrel.

But within those two weeks since the start of 2024, there also was a one-day drop of $3.35 a barrel and a pair of declines in excess of $1 a barrel.

And Wednesday, the price of Brent at approximately 9 a.m. EST was down an additional $1.50 a barrel.

The end result is that Brent’s final settlement of 2023 was $78.39 a barrel. On Tuesday, it settled at $78.29 a barrel and was headed even lower in intraday trade Wednesday. 

Ultra low sulfur diesel (ULSD) futures have been somewhat stronger in 2024. Those futures price increases translated rapidly into wholesale price increases, which presumably were a factor driving retail prices higher, as seen in the DOE/EIA price.

A ULSD settlement of $2.5563 a gallon on the final day of 2023 rose in fits and starts to a settlement Tuesday of $2.6606 a gallon. But like crude, it also was experiencing declines Wednesday, with a 9 a.m. price down approximately 4.4 cents a gallon.

Oil markets Wednesday were digesting the monthly oil outlook report from OPEC, which on the surface appeared bullish but had some forecasts that could be interpreted as bearish, and the fall in prices reflected that.

The OPEC report is one of three closely watched global reports that are published in the first 10-15 days of most months: the Short Term Energy Outlook from the EIA, the OPEC report and the International Energy Agency report, which will be released Thursday.

OPEC reduced its estimate of how much oil the market will need from its members by about 500,000 barrels a day. And while the “call” on OPEC crude — which is how it is termed — remains above current OPEC supply and is forecast to be higher in 2024 than it was in 2023, the group has a significant amount of capacity on the sidelines due to cutbacks in output so that any surge in demand could be met easily by the members.

OPEC also mostly held steady its estimate of the growth in supply from non-OPEC nations, with only a small revision downward. It is mostly non-OPEC growth this year from countries such as the U.S., Guyana and Brazil that is seen as the primary driver of oil prices, which by midsummer were threatening to get to $100 a barrel. The peak was about $95 and it has been mostly all downhill since then.

The analysis that oil markets will continue to move toward surplus came on the same day as a key economic report from China. It showed 5.2% growth in GDP last year, with the expectation that much of that growth was from coming out of COVID and that it can’t be repeated in 2024. Chinese economic activity is generally seen as the “swing” side of the demand balance in oil markets.

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