The diesel market has been on a rollercoaster ride, with futures and wholesale prices experiencing significant swings in the past six to seven trading days. Despite the volatility, the end result for the trucking industry's key diesel benchmark was a drop in the weekly price.

Navigating the Turbulent Diesel Market

Retail Diesel Prices Decline Amid Futures Volatility

The Department of Energy/Energy Information Administration's average weekly retail diesel price fell 3.7 cents per gallon on Monday, reaching $3.536. This marks the second decline in the past three weeks for the price used for most fuel surcharges, taking it to the lowest level since September 23rd. The sharp drop in diesel futures prices from a week ago, which initially appeared to signal the end of a recent cycle of higher commodity and retail diesel prices, fully reversed itself in one week and ended up moving higher in Monday's trading. However, retail prices tend to lag behind futures movements, as evidenced by this week's decline.

Volatile Diesel Futures Market

Last week's diesel futures market kicked off with a significant drop, followed by five consecutive days of gains, including a 5.02-cent-per-gallon increase on Monday to $2.2841, the highest settlement since October 11th. Without any major changes in market fundamentals, the price of ultra-low-sulfur diesel (ULSD) traded on the CME commodity exchange had an eventful week. On October 28th, ULSD fell almost 11 cents per gallon after an Israeli retaliatory attack on Iran did not target any of Iran's oil production or export facilities. However, ULSD futures prices then climbed during the course of the week, with the only real news on fundamentals being a somewhat bullish midweek report on U.S. inventories. By Friday, the settlement price of ULSD was just 0.42 cents less than where it had settled the prior Friday before the limited Israeli action.

Geopolitical Tensions and OPEC+ Decisions

The big increase in ULSD prices on Monday was driven by several pieces of news. Multiple reports suggested that Iran was planning its own retaliatory attack on Israel, which was likely to be larger in scope than the October 1st attack by Iran on Israel, which was in retaliation for earlier actions Israel took against Hezbollah in Lebanon and other Israeli proxies in the region. Additionally, the OPEC+ group decided to again cancel a 2.2 million-barrel-per-day increase in production that had originally been planned for September but was pushed back to December as oil markets continued to weaken. In a television interview, OPEC Secretary General Haitham Al Ghais downplayed the significance of the delay, stating that OPEC+ has demonstrated its ability to be proactive and make adjustments as necessary to ensure market stability.

Libyan Oil Production Fluctuations

Another factor impacting the diesel market was the increased production in recent days from Libya. A post by the Libyan National Oil Corp. stated that output in the country now exceeds 1.3 million barrels per day and was on its way to 1.5 million. During a recent standoff between the rival regional governments that are each seeking to control the country, Libyan output fell to near 700,000 barrels per day.

OPEC's Demand Projections and Outlook

In his television comments, Al Ghais addressed OPEC's bullish projections on increased global oil demand next year. While the International Energy Agency sees oil demand next year rising less than 1 million barrels per day, OPEC projects an increase of 1.9 million barrels per day. Al Ghais stated that OPEC has reduced its demand projections, but not as much as the IEA. He also expressed confidence in the strength of the global economy, citing the implementation of Chinese stimulus measures and projections of 5% GDP growth, as well as a strong U.S. economy. Al Ghais believes there is "a bit too much doom and gloom and pessimism" in some market assessments of demand.