What war? Diesel, crude give up most of their gains since attack on Israel

Broader oil markets have given up most of the increase in prices that came out of the Hamas invasion of Israel Oct. 7, and the benchmark retail diesel price has renewed its slide to a level last seen before renewed hostilities began.

The Department of Energy/Energy Information Administration average retail weekly diesel price fell 9.1 cents a gallon Monday to $4.454. On Oct. 10, right after Hamas’ incursion into Israel but too soon for it to have affected retail diesel prices, the DOE/EIA price came in at $4.498 a gallon. After several weeks of tensions and now the Israeli counterinvasion into Gaza, the price used for most fuel surcharges is actually 4.4 cents a gallon less than where it was before Hamas attacked.

The DOE/EIA price never did have the type of surge seen in the futures market, because that sharp increase proved to be short-lived and retail numbers at the pump operate on a lag. But the Hamas-driven upward move is now mostly over in broader petroleum futures markets.

On Oct. 6, the last day before the Hamas invasion, world crude benchmark Brent settled at $84.58 a barrel on the CME commodity exchange. Its peak settlement after that was $92.38 a barrel on Oct. 19. But its settlement Monday was $87.45, with just a few dollars of “war premium” left in the price.

A similar trend has been witnessed in the price of ultra low sulfur diesel on CME. It settled at $2.9008 a gallon Oct. 6 and peaked at $3.2117 on Oct. 13. Its Monday settlement of $2.9663 a gallon is only 0.0003 cents less than where it settled on the first trading day after Hamas invaded Israel.

Driving the downward trend, according to analysts, is that for all the fears of a broader Mideast war that could take out oil production, shipping capabilities or both, none of those fears have been realized.

To the contrary, Iran reported earlier this week that its production had reached 3.4 million barrels a day. In April, according to S&P Global Commodity Insights, its output was just over 2.6 million barrels a day. That added output of 800,000 barrels a day is coming even as the OPEC+ group and Saudi Arabia on top of that continue to stick to their output cuts implemented in May (for OPEC+) and June (for Saudi Arabia’s additional 1 million-barrel-a-day cut). Add to that higher increases out of places like Brazil, Guyana and the U.S. — where production is up roughly 1 million barrels a day since April — and the fears of $100-a-barrel Brent crude so prevalent in the spring have largely faded.

That isn’t to say all worries about the spread of war in the Middle East have dissipated. The headline number that came out of the World Bank report released Monday was that a large-scale conflict in the Middle East could spike oil prices to more than $150 a barrel, assuming a baseline price of $90.

However, the more sober parts of the report said that a “small oil supply disruption” scenario arising from any sort of armed conflict in the Middle East could tack on 3% to 13% more than the $90 baseline.   

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Editor: John Kingston