Diesel Prices Surge in the USA Amid Strong Demand and Global Supply Concerns

Diesel average prices in the USA have jumped again in the month of August 2023, according to data from Energy Information Administration (EIA). The smallest jump was in the Central Atlantic, about 10.4 cents a gallon, and the largest was in California, about 17.9 cents a gallon. However, we have seen a continuous downtrend in Ethanol prices starting from Dec '22 and continuing till July '23 in American territory. As per Chemanalyst's data on July 31, the Diesel prices had been hovering around USD 3.8 per gallon in Washington on a DEL basis. According to sources, the strong upstream wholesale energy markets and demand across the downstream sectors in the U.S. economy, such as freight, have built the backbone of the Diesel prices uptrend.

The U.S. economy has been still performing better than expected. The consumption rate of Diesel in the freight and construction industry has been on the much higher side. Domestic markets have also demonstrated a strong demand. As per several economists, there was a hike in the freight demand outlook by about 9-10%. Moreover, the trucking companies are pretty confident that this trend will continue for several months.

The second largest increase after the west coast has been seen in East Coast retail prices, backed by the absence of Midwest shipments. However, Midwest Diesel has remained stable due to ongoing maintenance on locks at the Illinois River, which have been started in June and scheduled September as the deadline.

According to EIA, in a period from June 9 to July 14, domestic inventories of distillate fuel oil, specifically Diesel, have increased by 18% (4.7 million barrels). However, according to their prediction, the U.S. Diesel inventory outlook will be tighter for the second half of summer 2023. This has also seemed to act as a supporting factor behind Diesel's retail price increase. The hike in Diesel prices has also been backed by tight supply globally. Moreover, there has been a growing concern about colder winters and higher refining margins to be continued, which can lead to further hikes in Diesel prices.

According to ChemAnalyst, the uptrend in prices will most likely depend on a major oil supply cut by OPEC+, unfortunate supply disruptions, further growth in demand, and market fundamentals from the energy sector. Currently, the fundamentals in energy markets have been improved, and the energy prices rally will be continued to be triggered by Supply dynamics. However, demand has to be improved both domestically and internationally.