OPEC+ Cut And European Refining Disruption Push Diesel Prices Higher | Advisor Pulse

Two market developments are pushing diesel prices considerably higher following the Breakthrough Advisor release on October 4. First, the Organization of Petroleum Exporting Countries and its allies, known as OPEC+, met on October 5 and committed to removing two million barrels per day of crude oil production from the market beginning November 1, 2022. Secondly, the full extent of the impact of refinery worker strikes in France is being felt in the diesel market and rapidly pushing international diesel premiums higher.

The OPEC+ Production Cut Impact

The OPEC+ countries committed to their action of cutting two million barrels of crude oil production per day to secure the price floor for crude oil should an international economic slowdown take effect. News of the OPEC+ plan emerged at the end of September but estimates of the production cut fell short of the cartel’s announced commitment of two million barrels per day and led to immediate upward price pressure for crude oil. This move will likely push the average Q4 crude oil to $90-$100 per barrel, contributing upward diesel price pressure. Our 2023 forecast is based on a $90 barrel of oil. The long-term implication of the OPEC+ announcement is greater market uncertainty.

Refinery Labor Strikes in France

The ongoing strike by French refinery workers is also a profound diesel market disruption. The refinery strike began at the end of September with limited price impact but is among factors pushing diesel premiums quickly higher during the first week of October. The continuation of the strike complicates the European Union’s ability to grow diesel inventories ahead of its goal to ban the import of Russian refined petroleum products by sea as of February 2023.

Adding it All Up

The combination of crude oil and diesel price shocks to start the month of October has increased diesel prices by about 65¢ per gallon (illustrated in the chart above). Consequently, the truckload differential between the Department of Energy’s weekly retail index and wholesale prices has fallen to less than 15¢ per gallon.

These developments will likely keep Q4 2022 – Q1 2023 diesel prices higher than projected in our latest forecast. We will provide an updated forecast during our October Advisor webcast on Thursday, October 13 at 2pm CST. In light of these significant market events, we will distribute webcast content to all Advisor subscribers.

We continue to forecast lower wholesale diesel prices, on average, during calendar year 2023 than 2022 by approximately 10 percent, which was our latest forecast guidance. Historically high market volatility has been present through most of 2022 and will continue into 2023.