New Sanctions on Russia and Disappointing U.S. Crude Production Impact Market
After fluctuating over the past few weeks, which resulted in lower diesel prices, recent increases suggest that retail diesel prices may have reached a temporary bottom. Additionally, developments in crude oil futures markets are indicating potential price changes.
The average retail diesel price, as reported by the Department of Energy and Energy Information Administration (EIA) on Monday, has increased by 2.5 cents, now standing at $2.592 per gallon. This figure is important for fuel surcharges and represents a 4.3-cent increase over the past two weeks, though still significantly lower than the prices seen in January and February. At the start of the year, prices hit a peak of $3.1716 per gallon on January 20.
On Monday, crude oil futures and associated products saw a notable uptick. Ultra-low sulfur diesel (ULSD) settled at $2.314 per gallon, climbing 5.31 cents, a rise of 2.35%. Additionally, the price of West Texas Intermediate (WTI) crude increased by $2.12 per barrel, reaching $71.48, marking the first time WTI has surpassed $70 per barrel since February 27.
This surge in prices coincided with geopolitical tensions, specifically concerns regarding Russia. A recent report suggested that President Trump’s dissatisfaction with Russian President Putin might lead to new tariffs that could limit Russian oil exports. These concerns are fueling supply-side fears, which are contributing to the rise in oil prices.
However, analysts like Rebecca Babin, senior energy trader at CIBC Private Wealth Group, have noted that any market instability due to broader economic factors could eventually lead to a decrease in crude demand.
January’s price hike is attributed to the final sanctions imposed by the Biden administration on Russia. These sanctions restricted Russian oil exports, further influencing market dynamics.
A key aspect of Monday’s market activity was the U.S. crude production data from the EIA’s monthly report. This report is typically more accurate than weekly figures and showed a decline in U.S. crude production, dropping to 13.15 million barrels per day in January. This represents the lowest production level in almost a year and marks a larger decline than previous weekly reports indicated.
The drop in production was 2.3% from December’s output, with major states like Texas, North Dakota, and New Mexico all reporting decreased production. Texas saw a 1.8% decline, North Dakota a 0.8% drop, and New Mexico, now the second-largest oil producer in the U.S., recorded a 2.5% reduction in output.