The Monday oil market left traders reeling, seeking therapy for severe whiplash. The release of the weekly benchmark diesel price, used for most fuel surcharges, seemed anticlimactic in comparison. The Department of Energy/Energy Information Administration reported a mere one-tenth of 1 cent increase in the average retail diesel price, bringing it to $3.66 a gallon. This minute movement, the smallest incremental change possible, was a stark contrast to the volatile activity in the futures markets on Monday.
Over the past eight weeks, the DOE/EIA diesel price has risen in six weeks and fallen in two. The current price is 20.2 cents per gallon higher than it was on December 9th, when a series of mostly increasing prices began. Despite the minor increase in the average retail diesel price, the futures markets were reacting strongly to the possibility of tariffs on oil imports from Canada and Mexico. The focus was primarily on Canadian oil, as it is a significant supplier to the U.S. market and not as easily replaceable as Mexican imports.
When the oil markets opened for trading on Sunday evening, crude oil, ultra low sulfur diesel (ULSD), and RBOB gasoline all experienced significant spikes. The markets were driven by the potential impact of a 10% tariff on Canadian crude and refined products. However, by the end of the day, both Mexico and Canada had reached agreements with President Donald Trump to postpone the tariffs for one month.
ULSD for delivery in New York Harbor in March settled at $2.4631 a gallon, marking a 6.58 cent increase from Friday. RBOB gasoline also saw a similar increase. Despite the uncertainty surrounding tariffs, crude oil prices did not experience a significant increase. West Texas Intermediate crude rose just 63 cents per barrel to settle at $73.16, while Brent settled at $75.96 per barrel.
The role of Canadian crude in the U.S. oil market is substantial, with Canada accounting for 40% of all U.S. crude imports in November. The potential impact of tariffs on Canadian oil prices was a major concern for traders. However, crude oil prices may have been influenced by other factors, such as movements in financial markets.
In addition to the tariff news, the OPEC+ group decided to maintain their current output cuts, totaling 2.2 million barrels a day. This decision came after a previous plan to increase output in April was rolled back. The final decision on whether to proceed with the April increases will be made in early March.
Overall, the oil markets experienced a mix of uncertainty and stability on Monday. Despite the minor increase in the average retail diesel price, the futures markets reacted strongly to the potential impact of tariffs on oil imports from Canada and Mexico. The decision by OPEC+ to maintain output cuts added another layer of complexity to the market dynamics. Traders will continue to monitor these developments closely in the coming weeks.
