Diesel Prices Surge as Middle East Disruptions Outweigh Russian Supply

Global benchmarks retreated after a three-day rally, with December ICE Brent crude dropping 70cts to $105.95/bbl. Conversely, November West Texas Intermediate gained 48cts to reach $94.22/bbl. In the refined products sector, the November ULSD contract surged 17.62cts to $4.8994/gal, while RBOB gasoline slipped 2.75cts to $3.2642/gal.

Analysts remain doubtful that new U.S.-Russia supply agreements or domestic tax breaks will stabilize the market. Transportation technology firm Breakthrough noted that most trucking companies face significant administrative hurdles when attempting to utilize dyed diesel, limiting the effectiveness of recent policy shifts. ING analysts echoed this sentiment, arguing that additional Russian barrels are insufficient to bridge the current gap in middle-distillate supplies.

Supply risks in the Middle East continue to drive market volatility as vessel attacks near the Strait of Hormuz throttle energy shipments. Kpler data indicates that flows through the strait averaged 10.5 million b/d over the past week—a 38% decline from the 17.1 million b/d prewar baseline. OPEC+ ministers reported that rising insurance and shipping costs now account for over one-third of the total cargo value, further inflating operational expenses. In a revised outlook, OPEC lowered its 2024 global oil-demand growth forecast to 180,000 b/d, down significantly from its previous 380,000 b/d estimate.