Diesel benchmark and futures move up again, but with possible signs of a peak

The diesel price used as the benchmark for most fuel surcharges continued its upward climb this week, though volatile market trends and the march of the calendar may signal a peak in the recent surge.

The Department of Energy/Energy Information Administration average weekly retail diesel price rose 5.7 cents/gallon to $3.681/g. It’s the third consecutive week of higher prices. That trio of upward moves has taken the price up 22.2 cts/g during that period.

Movements in the retail price of diesel have been ongoing alongside a surge in the futures price of ultra low sulfur diesel on the CME commodity exchange. But that surge, for now, may have run its course.

Fueled by the cold weather, which increases the demand both for heating oil–which like diesel is a distillate–and for the l…

Fueled by the cold weather, which increases the demand both for heating oil–which like diesel is a distillate–and for the lesser use of diesel to generate electricity in some localized applications, the front month price of ULSD soared to a settlement Friday of $2.7356/g. It was the highest settlement since April 5, 2024 and marked a one-week increase of just over 30 cts/g.

But that price was for the contract that covered deliveries of ULSD into New York harbor, the contract’s delivery point, in February. On Monday, one trading day later, the front month contract was for March.

Rolling over from February to March

And while it may be hard to believe it this year, March is generally warmer than February. The result was that on Friday, the final day for February barrels, the March settlement was $2.533/g, 20.26 cts/g less than where February settled that day.

In Monday trading, the front month price of ULSD–again, reflecting March barrels–fell 8.48 cts/g to $2.275/g, marking a decline in the front month contract of just over 46 cts/g, with much of that decline being provided by the expiration of the February contract and the substitution of the March contract as the front month contract.

A commodity contract on CME for a given month is what is known as an “any” contract: the delivery needed to satisfy the contract can take place over any time period in the given month.

Given that, the March contract could be for the first days of the month, when it is said to come in like a lion, or the final days of the month, when legend has it March goes out like a lamb.

Diesel surging more than crude

The recent surge in diesel prices has far outstripped what has gone on in crude. From a recent low settlement of $2.0567/g on January 7, ULSD rose 33% to Friday’s hefty settlement on the last day of the February contract. By contrast, global crude benchmark Brent had risen just 10.8% during that time.

Smoothing it out for a comparison of Monday’s respective prices, ULSD was up 14.7% since that January 7 low, and Brent was up 10.8%.

While the leading statistical reports like the International Energy Agency have been predicting a supply/demand imbalance for the rest of the year with supply growth well ahead of demand, energy economist Philip Verleger sees it differently.

Structural strength?

Not surprisingly, he sees diesel as the reason for that. Verleger has long been an economist whose analysis has given the economics of diesel a leading role in his view of the market.

“The displacement of Middle Eastern crudes by light crudes fracked in the United States has reduced global diesel availability because light crudes yield low distillate volumes, a problem often noted here,” Verleger writes in his latest weekly report. “The consequence of the light crude oversupply is becoming apparent as diesel refining margins reach record highs.”

Although U.S. crude production has slipped from recent levels, it had been at a record number. But the U.S. surge has been in light crudes, which do not produce a strong diesel yield.

Given that diesel is the fuel of industry, even when it is being used for transportation, Verleger sees the coming boom in data centers as a key factor driving diesel demand.

“Oil market forecasters will face another surprise in 2026: strong diesel demand driven by the rapid expansion of data centers,” he said. “This development has not yet been noted by those following the oil sector. It soon will be.”

Geopolitics are also playing a role. As Verleger notes, “The EU sanctions banning imports of distillates refined from Russian crude will tighten markets.”

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