Diesel prices increased in recent weeks as various market developments look to correct the severe energy imbalance created by COVID-19. The relaxation of coronavirus containment efforts has allowed many economies to partially reopen. This has tentatively boosted demand for certain transportation fuels and the crude oil required to make them. Additionally, oil and refined product suppliers continue to lower production and tighten the market. In response, national wholesale diesel prices have risen about $0.25 per gallon to $1.57 per gallon since bottoming out at the end of April. WTI oil prices remain at their highest point in over a month at about $24 per barrel.
Producers remain motivated to boost prices in the wake of COVID-19’s collapse. U.S. refinery output rates are still near record lows and oil production has fallen over 1 million barrels per day since reaching historic highs in February. Record OPEC+ production cuts also began May 1. Saudi Arabia plans to take on additional cuts of 1 million barrel per day in June on top of its initial pledge to the group. These developments, paired with a gradual economic resurgence, have reversed the downward diesel price trend for the time being.
News of a demand comeback has raised more hope than confidence, however, because longer-term fuel demand still hinges on the pandemic and whether economies can sustain a reopening. Reports of a second wave of COVID-19 cases in countries that have started to return to normal have recently tempered beliefs of a demand recovery. Nonetheless, more aggressive supply-side restraints will support diesel prices in the months ahead while the demand picture remains extremely fluid.
Labor markets are in flux amid the evolution of COVID-19. The sharp and historic surge in unemployment claims leaves consumers out of work, less apt to spend, and more inclined to save. The national unemployment rate rose to a record 14.7 percent and payrolls dropped a historic 20.5 million in April. April’s negative employment figures compared to losing a full decade’s worth of job growth in a single month. Initial jobless claims figures paint an even bleaker picture. Over the past seven weeks, jobless claims surpassed 30 million. For context, prior to the initial surge, it took about 137 weeks to reach those levels dating back to 2017. Mass layoffs and furloughed employees cast a negative outlook on freight demand moving forward.
Demand for durable and discretionary goods has shown pronounced declines, and nondurable goods are expected to follow suit. Freight demand in the entirety of the Breakthrough Network, however, has shown slight growth compared to prior year volumes. This is mainly due to the demand for nondiscretionary goods remaining strong.
As economies start to reopen, it will be important to monitor the outcome of COVID-19. Freight demand will undoubtedly be impacted by the health of the U.S. economy as lockdowns begin to ease and new consumer trends begin to emerge.
View our past market updates in response to COVID-19 and recent OPEC+ dynamics below:
- 5.4.2020 | Shifting Dynamics Leave Markets Volatile
- 4.27.2020 | Market Turmoil Persists on COVID-19’s Dominance
- 4.20.2020 | Oil Prices Go Negative on Consequences of COVID-19’s Demand Hit
- 4.13.2020 | OPEC+ Agrees to Cuts, COVID-19 Retains Market Influence
- 4.6.2020 | Market Evolution Continues with COVID-19 Persistence
- 3.30.2020 | COVID-19 and OPEC+ Conflict Leave Markets Volatile
- 3.23.2020 | Evolving Impacts of COVID-19 & OPEC+ Conflict on U.S. Markets
- 3.17.2020 | Fuel & Freight Market Update: Ongoing Impacts of COVID-19 & OPEC+ Conflict
- 3.9.2020 | Energy Market Crashes Amid Coronavirus Spread & OPEC+ Conflict
- 2.18.2020 | Price Impacts of the Coronavirus on Global Fuel Markets