Diesel Prices Continue Upward Trend for Third Consecutive Week, Rising About 20 Cents Since December
Despite a relatively stable diesel market with minimal fluctuations, several underlying factors could significantly impact oil prices—and, consequently, diesel costs—in the near future.
The restrained movement in diesel prices was evident in Tuesday’s latest report from the Department of Energy/Energy Information Administration (DOE/EIA). The average weekly retail diesel price increased by 1.2 cents per gallon to $2.677, marking a mere 1.8-cent fluctuation over the past three weeks. This price serves as the benchmark for most fuel surcharges.
However, the broader trend shows a steady rise. The DOE/EIA price has climbed in seven of the past eight weeks, now sitting just over 20 cents per gallon higher than its December 23 level. Much of this increase followed the Biden administration’s imposition of stricter sanctions on Russian oil shipments in early January. The market initially responded with expectations that these sanctions would effectively limit Russian supply.
In the futures market, which ultimately influences pump prices, volatility has also remained subdued. While intraday fluctuations have occurred, they tend to cancel each other out. For instance, on February 11, ultra-low sulfur diesel (ULSD) prices spiked by more than 6 cents, only to decline by a similar margin the next day.
The end result: ULSD settled at $2.4308 per gallon on February 7, compared to $2.4406 on Tuesday—almost unchanged by just 1 cent.
For comparison, between July 8 and September 16, 2024, DOE/EIA diesel prices dropped from $3.865 to $2.525 per gallon. Conversely, between July 10 and September 18, 2023, prices surged from $3.806 to $4.633 per gallon.
The oil market now awaits clarity on the potential impact of tariffs on crude imports, with Canada in particular focus. A Trump administration proposal to impose tariffs on all imports, including energy, was initially set for early February but has been postponed until March 4.
Under the proposal, Mexico and Canada would face a 25% tariff on all exports, while Canadian energy exports would see a lower 10% tariff.
Canada’s position draws significant attention, as most of its oil exports to the U.S. move through pipeline infrastructure, limiting its ability to reroute shipments elsewhere. By contrast, Mexico’s waterborne exports can be redirected to other markets, allowing U.S. refiners to replace Mexican crude with supplies from non-tariffed sources.
According to the latest EIA data (which lags by two months), Canadian crude exports to the U.S. in November totaled just under 4 million barrels per day, making up about 40% of total U.S. crude imports, which stood at 6.6 million barrels per day. Canada remains the largest supplier of crude to the U.S., followed by Mexico at approximately 450,000 barrels per day.
Additionally, Canadian ultra-low sulfur diesel imports reached 119,000 barrels per day, accounting for around 97% of total U.S. diesel imports. However, the U.S. remains a key diesel exporter, particularly to Latin America and Europe.
The Upper Midwest (classified as PADD2 by the EIA) would likely bear the brunt of crude tariffs. PADD2, which includes refineries in Chicago and the Great Plains, imported approximately 2.66 million barrels per day of crude in November, representing 100% of the region’s crude imports. These refineries are heavily reliant on Canadian crude.
While Canada does have alternatives—such as exporting oil via the Trans Mountain Pipeline to the West Coast—current infrastructure constraints limit any significant increase in outbound capacity. As a result, Canadian crude would struggle to find alternative markets quickly enough to offset U.S. tariff impacts.
A report from the Energy Policy Research Foundation (EPRINC) analyzed the potential impact of a 10% tariff on Canadian oil. Western Canadian Select (WCS), Canada’s benchmark crude, typically trades about $14 per barrel lower than West Texas Intermediate (WTI), though this discount fluctuates. Meanwhile, Mexico’s Maya crude carries an approximate $5 per barrel discount.
EPRINC estimates the total value of 2024 Canadian oil imports at $92 billion, with Mexican imports valued at $12 billion—making up roughly 12% of total trade between the U.S. and these countries.
“With Canadian and Mexican crude accounting for nearly 30% of U.S. oil consumption, applying the proposed tariffs would increase costs by an estimated $10.4 billion annually, or about 2.9%,” EPRINC reported. “For gasoline, this would translate to a 9-cent-per-gallon increase based on the current U.S. average of $3 per gallon.”
While no specific estimate was given for diesel, given its higher price point relative to gasoline, the impact would likely exceed 9 cents per gallon.
Given PADD2’s heavy reliance on Canadian crude, would this region face steeper price increases compared to the rest of the U.S.?
In theory, market forces should rebalance regional price discrepancies by redirecting supply to PADD2 if its prices surge. However, existing pipeline infrastructure is not designed to move refined products from the East Coast to the Midwest. In fact, systems like the Buckeye pipeline transport fuel in the opposite direction.
Other solutions—such as shipping fuel via barges, rail, or alternative pipelines—are possible but would take time to establish. Additionally, price premiums in PADD2 may not always be sufficient to justify these logistical shifts.
As Argus Media recently highlighted, “Energy trade across North America has been tariff-free for decades.” Vinson & Elkins partner Jason Fleischer noted, “It’s been a long time since oil and gas pipelines have really had to deal with anything quite like this.”
In other oil market developments, the OPEC+ coalition is expected to postpone its planned production increase once again.
Since 2023, OPEC+ has maintained production cuts, repeatedly delaying scheduled increases. If the 120,000-barrel-per-day hike slated for April is pushed back, it would mark the fourth delay since 2022.
Currently, over 2 million barrels per day of planned cuts are set to be restored by the end of 2025. However, Bloomberg reported that an OPEC+ delegate described the global oil market as “too fragile” for a production boost at this time. Another delegate noted that the group remains divided, with a final decision expected in the coming weeks.
While diesel prices have seen relatively stable movements in recent weeks, external factors—including potential tariffs on Canadian crude and OPEC+ production decisions—could soon introduce new volatility to the market.