The 4.1-cent-per-gallon rise in the average benchmark retail diesel price posted Monday may be just the start of bigger increases in the coming weeks.
The weekly Department of Energy/Energy Information Administration price climbed that amount to $3.602 a gallon. It’s the highest price since October and the third consecutive week of an increase.
After weeks of mostly downward drift, several factors have seen oil turn around sharply.
Monday’s ultra low sulfur diesel price settlement of $2.5333 a gallon on the CME commodity exchange is its highest since July 7, when it settled at $2.5236. Since a recent low of $2.058 a gallon on Sept. 10, the price of ULSD has risen 46.56 cents through Monday’s settlement.
But more striking is what the price has done recently. ULSD settled Thursday at $2.3507 a gallon, which means the price rose 18.26 cents in just three trading days. Most of those gains came Friday and Monday after the release of new sanctions on Russian shipments of oil.
The most recent bullish spur has been the decision by the Biden administration, along with the United Kingdom, to impose those sanctions on Russian shipping of oil on top of what already was in place, though the impact of those first sanctions is generally believed to have faded over time.
Bloomberg quoted a report from Morgan Stanley which said the new regime of sanctions “went further than expected.”
“It will take some time to digest these measures, but this creates downside risks to oil supply, at least for a period,” the Morgan Stanley report said.
According to a report from S&P Global Commodity Insights, the sanctions hit key Russian oil producers Gazprom Neft and Surgutneftegas, as well as a wide range of ships, oil service equipment companies and insurance companies, among other targets.
The story from S&P Global Commodity Insights quoted its own analyst, Rahul Kapoor, head of Shipping Analytics and Research, as saying that “with so many ships sanctioned, along with traders, charterers and marine insurers, this set of sanctions will in all probability dent near-term Russian oil flows into Asia, particularly India and China.”
Those sanctions, and the prospect that they could restrict some level of Russian oil exports, are being seen as the primary driver of a sharp two-day upturn in oil prices on futures markets.
The overall rise in oil prices does not capture what is going on with diesel, which is outpacing crude.
Winter is playing a part in the increase as well, with diesel prices rising faster than crude. Diesel is a distillate, like heating oil, and cold weather is always a factor in the strength or weakness of diesel in the winter.