Retail diesel prices across the U.S. have skyrocketed since the beginning of February, rising 40.5 cents a gallon since the week ending Feb. 8, according to the Department of Energy’s Energy Information Administration’s (EIA) weekly pricing updates. Fuel prices have also increased for 18 consecutive weeks, rising 77 cents since the beginning of November.
As of the week ending March 8, the national average for a gallon of on-highway diesel was $3.143, the highest national average in nearly two years. The last time fuel prices were at this level was the week ending May 27, 2019, when fuel was $3.151 per gallon.
The Department of Energy credits a few different reasons for the drastic jump in the last five weeks: rising crude oil prices, strong demand for distillates, and the mid-February winter storms that shut down refineries in Texas.
According to EIA’s monthly Short-Term Energy Outlook released on March 9, Brent crude prices averaged $62 per barrel in February, up $8 a barrel from January’s average.
“Rising Brent [crude] prices in February continued to reflect expectations of rising oil demand as both COVID-19 vaccination rates and global economic activity have increased, combined with ongoing petroleum supply limitations by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries,” EIA said. “In addition, disruptions to petroleum supply from extreme winter weather in the United States (notably in Texas) put upward pressure on crude oil prices during February.”
National average diesel prices
Chris Lee, vice president of marketing for ProMiles, said he believes some of the recent increase in fuel prices stems from panic, along with refinery slowdowns in Texas due to the winter storms last month.
“With the closure of the anticipated Keystone Pipeline, there was some question" as to supply long-term, he said. Yet “I don’t think supply is an actual problem. I also don’t see that demand is the problem other than the spike with the cold snap" in February in the area where sits the "largest refining capacity in the U.S., between Houston and the Beaumont/Port Arthur area."
Extreme cold weather in this area, he added, thus had both supply and demand effects. It "changes the viscosity of the fluids going through the distillation process and slows it down significantly,” just as demand rises for home heating oil and other petroleum-based products.
EIA noted that U.S. crude production was down a half-million barrels per day in February from January, mostly due to the cold snap in Texas.
“Most of the decline reflects the cold temperatures that affected much of the country, particularly Texas,” EIA said. “Unlike the relatively winterized oil production infrastructure in northern areas of the country, infrastructure in Texas, such as wellheads, gathering lines, and processing facilities, are more susceptible to the effects of extremely cold weather.”
At the beginning of the year, Lee predicted fuel prices to reach a $3/gallon average by summer. Looking ahead, he sees prices leveling out in the coming weeks, but adds that he wouldn’t be surprised to see them continue rising.
“If I would have told people on Jan. 1 that the average would be over $3 by early March, they would have laughed me out of town, but here we are,” he said. “What concerns me the most is we're coming into the travel season, which ordinarily causes a small rise in prices, so I don't see the incentive for the prices to come down right now. I don’t think they're going to rise a whole lot higher, but if we are at $3.50 by July 4, I wouldn’t be surprised."
EIA’s prediction for diesel prices for the rest of 2021 are more moderate, with the agency forecasting a $2.88 per gallon average for the full year.