Benchmark Diesel Hits Record $6.529 as Futures Signal Relief

The Department of Energy/Energy Information Agency posted a ninth increase in 11 weeks in the benchmark diesel price used for most fuel surcharges, sending it up 24.4 cents per gallon to an all-time high of $6.529/g, effective Monday but published Tuesday.

The run has been relentless. Since it began with a posting of $4.578/g on July 6, the price has climbed a staggering $1.951/g.

Yet the futures market is telling a different story.

Futures reverse sharply

Ultra low sulfur diesel (ULSD) on the CME commodity exchange — the starting point for the price-setting steps that ultimately produce the number on the pump — signaled late last week a possible end, at least for now, to the relentless rise.

ULSD's record settlement came on Tuesday, September 15, at $5.262/gallon. Since then it has fallen 37.25 cts/g to Monday's settlement of $4.8895/g. Even that number sits about 40 cts/g above where it settled a month earlier.

The slide continued Tuesday. At approximately 9:25 a.m., ULSD was down 9.56 cts/g, or 1.96%, to $4.7939 — almost 47 cts/g below its September 15 record.

Traders cited news reports that Saudi Arabia is making progress reworking its east-west crude pipeline, which carries oil to the Red Sea port of Yanbu for export and avoids the Strait of Hormuz. The drop in diesel futures, along with concurrent declines in crude and gasoline futures over the last few days — particularly Monday — also followed U.S. estimates of oil and LNG flows through the Strait of Hormuz and buzz that President Trump might meet his Iranian counterpart at the UN General Assembly in New York this week.

"Focus has shifted to improving oil and LNG flows through Hormuz and the possibility of diplomatic progress on the sidelines of the UN General Assembly in New York," Arne Lohmann Rasmussen, chief analyst at A/S Global Risk Management, said, according to a report by Bloomberg. "The worst pressure on crude may be easing."

J.P. Morgan: we simply don't know

The confusion has reached the analysts themselves. The commodity research team at J.P. Morgan made a startling confession in a report published Thursday.

"For the first time since the start of the Iran conflict, we don't have a baseline view," the team wrote. "We simply don't know how to model the endgame."

The bank said it entered the Iran war assuming a few "economic red lines" the Trump administration would not allow to be crossed: $100 Brent, gasoline near $5/gallon, or a "5-handle" on the 10-year Treasury yield. Depending on the definition of "near," all of those have occurred — the AAA average daily retail price for gasoline Tuesday was $4.4750/g.

"With no clear signals from either the U.S. or Iran that they are prepared to de-escalate…the assumption that the disruption is temporary is becoming increasingly difficult to sustain," J.P. Morgan wrote.

Export ban gains traction

That uncertainty is now producing proposals that smack of desperation. One idea floating through the market: the U.S. should halt all diesel exports to aid American consumers.

The case is simple arithmetic. U.S. exports of ULSD averaged 1.267 million barrels/day last year, but since the Iran war began they have risen to 1.566 million b/d. Keep that supply at home, the theory goes, and it pressures prices downward.

Garrett Golding, an energy expert with the Dallas Fed, took to X to lay out the case against a ban. Additional supplies from halted exports would land mostly on the Gulf Coast, he wrote, because that region's refineries produce the surplus barrels that get exported. Downward pressure would be regional. The West Coast would get no relief, and neither would the Northeast.

"With US export volumes exiting the global market, the global diesel/distillate balance tightens," Golding wrote. "This immediately causes those prices to rise, and will boomerang back on portions of the country that rely on imports, namely the East Coast and to a lesser extent the West Coast."

Refineries that export diesel would lose markets, Golding said, leading to inventory buildups and likely cuts in operating rates — which have run consistently near 100% given how profitable diesel manufacturing is right now. Those cuts would also choke off other refined products.

"The bottom line in this discussion is when you reduce run rates because you can't export distillate/diesel, you end up reducing how much gasoline, jet fuel and other refined products you're producing – which means higher prices," Golding wrote.

For diesel buyers, the gap is stark: the fuel-surcharge benchmark keeps setting records even as futures point lower. Whether the futures reversal holds depends on Hormuz flows and any diplomatic progress in New York this week — developments that, by J.P. Morgan's own admission, no model can currently predict.