An oil market that was the friend of consumers for much of the fourth quarter has now turned to be a serious headwind, with the futures price of ultra low sulfur diesel settling Tuesday at its second-highest price in almost two years. The rising price of diesel futures, even before the latest surge in recent days, was reflected in the Department of Energy/Energy Information Administration average weekly retail diesel price. It rose for the second consecutive week, published Tuesday but effective Monday, j ...

Price Trends - The benchmark diesel price has increased by 7.1 cents/gallon to $3.53/g, marking the first upward movement after eight weeks of declines [1] - Ultra low sulfur diesel (ULSD) prices on the CME commodity exchange rose from $2.0567/g on January 7 to $2.3385/g on January 14, influenced by geopolitical tensions [2] - As of Wednesday, ULSD prices further increased by 8.31 cents/g to $2.4216/g, representing a 3.55% rise [3] Production Issues - Kazakhstan has halted output at two key fields, Tengiz and Korolev, due to electric power issues, with expected output reductions lasting another seven to ten days [4] - Kazakhstan's oil output fell from approximately 1.75 million barrels per day (b/d) in November to about 1.52 million b/d in December due to tanker loading problems [4] Market Dynamics - The International Energy Agency (IEA) reported a forecasted surplus of supply relative to demand for 2026, contributing to bearish fundamentals in oil markets [5][6] - Despite the IEA's bearish outlook, recent geopolitical tensions and production issues in Kazakhstan have led to a price rebound, with Brent crude settling at $64.92/b on Tuesday and reaching $66.52/b on January 14 [7]

Core Insights - The benchmark diesel price has decreased after a four-week increase, with the Department of Energy/Energy Information Administration reporting a decline of 3.7 cents per gallon to $3.831/g [1] - The diesel price surge relative to crude was attributed to sanctions against major Russian oil companies and tight global inventories [4] Price Movements - The average weekly retail diesel price fell from $3.868/g to $3.831/g, marking a decline after a previous increase of 24.8 cents [1] - The spread between ultra low sulfur diesel (ULSD) and crude benchmark Brent has narrowed from $1.1561 cents/g to 89.73 cents/g [2] Market Dynamics - The recent high spread of approximately $1.15/g was the highest since September 2023, indicating significant market volatility [3] - The market has shifted from a focus on sanctions to discussions of a peace plan in the Russia-Ukraine conflict, which may influence future price movements [5] Inventory and Contract Structures - The spread between first and second month ULSD contracts has begun to narrow, suggesting a potential increase in inventories [5] - The market has been in a backwardation structure, where front month prices are higher than subsequent months due to tight inventories [6] Spread Fluctuations - The spread fluctuated significantly, moving from negative 7.64 cents/g to negative 4.22 cents/g over several days, indicating changing market conditions [7]