Strait of Hormuz worries: diesel price index hits an all-time high

Record-Breaking Surge in Diesel Benchmark Price

The benchmark used for calculating most fuel surcharges has experienced its largest weekly jump since tracking began.

According to the Department of Energy/Energy Information Administration, the average weekly retail price soared by 96.2 cents per gallon, reaching $4.859 per gallon as of Monday, with the data released on Tuesday. This marks the most significant increase since the series started in March 1994.

Previously, the biggest rise was 74.5 cents per gallon on March 7, 2022, following Russia's invasion of Ukraine. This week's spike has surpassed that record.

The magnitude of this latest price hike overshadows previous weeks, yet it also marks the eighth straight week of increases. Over this period, prices have climbed by $1.40 per gallon.

The last time the DOE/EIA benchmark reached similar heights was December 5, 2022, when it stood at $4.967 per gallon.

Market Volatility and Oil Price Fluctuations

This price escalation coincides with a sharp turnaround in oil markets on Tuesday, with diesel prices beginning to shift a day earlier.

At around 10:40 a.m. EDT Tuesday, ultra low sulfur diesel (ULSD) traded on the CME commodity exchange had dropped by 14.01 cents per gallon to $3.4465 per gallon, a decrease of 3.91%.

The period between Monday and Tuesday saw dramatic price swings. On Monday, ULSD settled at $3.5866 per gallon, down 3.58 cents for the day, but had traded as high as $4.4715 per gallon. By mid-morning Tuesday, prices had fallen to $3.3047 per gallon, resulting in a fluctuation of roughly $1.17 from the highest to lowest price since trading began Sunday evening at 6 p.m. Eastern time. The highest prices were reached during those early Sunday evening hours in the U.S.

Factors Driving Uncertainty

Such extreme volatility is likely due to uncertainty surrounding transit levels through the Strait of Hormuz and remarks from President Trump suggesting the Iran conflict might soon conclude.

However, reports from S&P Global Energy indicate that supply constraints may persist. Their “factbox” revealed that only four ships passed through the Strait of Hormuz on March 8, compared to 91 on February 28. Some vessels may have turned off their transponders, making it difficult to determine the exact number of ships moving through the area.

Goldman Sachs reported on Monday that traffic through the Strait of Hormuz was just 10% of typical levels.

S&P Global Energy’s Commodities at Sea service noted that Persian Gulf loadings totaled 3 million barrels on Sunday, far below the usual daily volume of about 20 million barrels.

Additional reporting indicated that last week, approximately 17 million barrels per day of crude and products did not depart the Persian Gulf, largely due to production halts in Iraq and Kuwait.

Production Shutdowns and Long-Term Impacts

With storage facilities nearing capacity and export routes either closed or restricted, these countries have reduced production. Restarting shut-in wells is not a simple process; it can take weeks or months for operations to return to normal, rather than just hours.