Diesel back over $4 a gallon; Mideast tensions, other worries cited

Diesel prices are back over $4 a gallon, according to the U.S. Energy Information Administration’s (EIA) weekly, on-highway survey of prices at 73,000 service stations and 9,500 truck stops around the country.

Average diesel prices rose by 6.5 cents, increasing to $4.06 per gallon as of Monday, April 8. The Western states of Arizona, Nevada, Oregon and Washington saw the highest average price increase for the period, rising 11 cents to $4.26 per gallon.

The second-highest rise was a 9-cent increase to $3.76 a gallon in the Gulf Coast region, which includes southern border states from New Mexico to Alabama.

The New England region of six states—Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont—had prices remain at around $4.31 per gallon.

The rise was contrary to the EIA’s own short-term forecast. That has diesel supposedly declining to $3.92, down from last year’s $4.21. For what it’s worth, EIA has the 2025 diesel price tabbed at $3.85.

Even with these latest increases, diesel prices are about 9.4 cents below what they were a year ago. But the key to whether diesel will continue to rise depends on the price of crude oil, which last clicked over $100 a barrel back in 2022.

Geopolitical tensions, the war in the Middle East, refinery issues and the switch to slightly more expensive summer-grade gasoline were all cited as factors in the global price of crude oil, experts opined.

Phil Flynn, energy analyst for the Price Futures Group, predicted the oil market is going to get “extremely tight” in the second half of the year and that Organization of Petroleum Exporting Countries (OPEC) has regained control of the oil market—at least in the short term.

“People in the market must face up to the fact that global demand is exceeding daily production and could by a wide margin by the end of the year,” Flynn said in a note to investors.

Research firm Vitol is predicting oil averages between $80 and $100 a barrel because of what it calls a restrained market. Vital CEO Russell Hardy says that oil demand growth is expected to be at 1.9 million barrels a day this year. Also, Reuters is reporting that Mexico is cutting oil exports by at least 330,000 barrels per day in May.

As in the past, Saudi Arabia is key. The Saudis have cut production by about 5 million barrels a day, or about 5% of supply. OPEC ministers are scheduled to meet in Vienna in early June to decide how much oil to put on the market.

Another factor is the Ukraine-Russia war. Ukraine has been successful in using drones and missiles to attack Russia’s oil refinery infrastructure. That comes despite Russia’s recent gains in the war on the ground in Ukraine.

The latest rise in oil prices came after Hamas rejected the terms of the ceasefire and Israeli Prime Minister Benjamin Netanyahu said Israel will be moving forward with a planned attack on the city of Rafah in the Gaza Strip.

Of course, oil’s rise is a major factor in the rise of the benchmark 10-year Treasury yield to its highest level since November. That has reignited inflationary fears in the U.S. and elsewhere over the long run.

This comes as the Iranian foreign minister continues to blame the United States for approving Israel’s attack on its consulate in Syria. The latest surge in oil prices has a barrel of West Texas intermediate crude oil selling for $85.60 in trading on April 9.

“Global demand is exceeding supply as China’s manufacturing sector surges,” analyst Flynn says. “Their domestic demand hit the highest level since pre-COVID.”

    S&P Global reported that China’s independent refineries ramped up imports by 13.3% on the month to a seven-month high of 127.54 million barrels in March, the highest since last August.

  “The supply squeeze is on and the bearish arguments that we would not consume as much oil because we were heading into a recession or that Chinese demand was near record high would peak were incorrect,” analyst Flynn said.

      J.P. Morgan reported that U.S. oil production is starting to fall to 12.32 million barrels a day over the past week. That’s down from 12.71 million barrels the prior week.

  Some oil insiders fear that because of increased regulatory burdens and the lack of capital, the domestic energy production is going to plateau. Other factors include cancellation of the Keystone XL pipeline, drilling moratoriums and threats of more regulations would stymie U.S. output and cede control of the global oil market back to OPEC.

   The Environmental Protection Agency is considering significantly strengthening proposed limits on planet-warming pollution from power plants — a crucial part of President Biden’s climate agenda.

   Discussions about toughening the standards, which are set to be released this month, have major implications for America’s fleet of power plants, which rank as the country’s second-largest contributor to climate change. They come as the administration weighs the political calculus of weakening or strengthening environmental regulations before the 2024 election.

   According to the EPA’s modeling, that regulation could prevent up to 10.6 million metric tons of carbon emissions per year — equivalent to taking 2.5 million cars off the nation’s roads for a year.

  Flynn believes current oil prices are “overbought.” But he is predicting some price corrections and more volatility are in store for diesel and gasoline prices during the high summer driving season.