The Outlook for Diesel Fuel Prices in 2024

January 17, 2024

It’s hard to predict what the future will hold in the complex landscape of diesel fuel pricing. 2023 saw reduced prices at the pump compared to recent years, but will this downward trend continue into the new year? Diesel prices are controlled by complex geopolitical and economic factors, including speculation, international conflicts, drilling dynamics, and the impact of refining processes. Let’s take a closer look at some of the conditions that could impact the cost of diesel in 2024.

To understand where diesel prices could land in the new year, it’s important to establish a current baseline cost for this important commodity. Current projections suggest an average price at just over $4 per gallon for the year. However, skepticism lingers as to whether this prediction will hold true.

Some experts advise taking action now by buying diesel futures, emphasizing a potential upward trend in the cost of fuel. The consensus among industry insiders seems to suggest that the current market might represent the bottom, with an anticipated uptick in diesel prices on the horizon.

Geopolitical considerations, especially events in the Middle East, are significant influencers on oil prices. Saudi Arabia’s role in managing oil prices cannot be overstated, as the kingdom goes to great lengths to sustain its extensive social welfare program via profits from oil. Some experts speculate that the Saudis will work to keep oil prices high in 2024, considering the potential for political unrest if prices were to decline.

“One of the principal things that constrains oil prices is the Saudi social welfare system,” explains Thomas Moore, Founder of Autoscheduler.AI. “If they see the price of oil beginning to slide, they’re going to do their best to keep that price up.”

What factors could influence diesel prices most heavily in 2024 and beyond? Watch the latest episode of the Stay In Your Lane Podcast to find out.

The underlying crude price is another crucial factor in relation to the price of diesel fuel. Keen observers point to a resistance level at $70 per barrel, indicating a concerted effort to maintain oil prices above this threshold. Despite all contributing factors, this seems to be the floor for minimum oil pricing.

The economics of oil drilling is also crucial to the price of crude oil used to refine diesel. New advances in drilling, particularly in Texas Shale, have proven to be a prolific area for oil production. A notable revelation was the discovery of a second layer of shale, further enhancing the region’s potential for oil and gas extraction. This discovery brought newfound optimism to the conversation around domestic oil production, suggesting increased efficiency in drilling processes.

The evolving approach to rig counts and horizontal drilling strategies also played a role in shaping the industry landscape in recent years. These techniques greatly improved the efficiency gains achieved in oil extraction compared to traditional methods, leading to a reevaluation of the significance of rig counts.

“Rig count—the number of rigs we have operating—used to tell us how much oil we were drilling,” says Moore. “Today, we use the same rig to drill multiple holes. It’s easier to move a rig a few feet to redrill rather than a few miles, and that’s made rig count less important.”

Challenges in refining processes will always have a direct negative effect on the price of diesel, highlighting the constraints posed by existing refineries. The reluctance to invest in new refineries due to high costs and environmental concerns has been an ongoing source of friction within the industry.

Further complicating the price at the pump is one key piece of legislation: the Jones Act of 1920 on shipping. This legislation, requiring vessels transporting goods between U.S. ports to be built and crewed by U.S. citizens, was deemed a hindrance to cost-effective oil transportation. This underscores the economic impracticality of building U.S. flagships for such operations.

“When I first got into this business, there used to be shipments from the port of New York to the Port of Houston, “says industry veteran Joe Lombardo. “The economics just aren’t there for US flagships, especially when crewed by US citizens.”

Current conditions paint a nuanced picture of the diesel fuel landscape in 2024. With considerations ranging from geopolitical events to drilling advancements and refining challenges, the industry is driven by complex factors that will influence diesel prices in the coming year. Stakeholders are advised to anticipate and plan for potential increases, affecting various sectors beyond just fuel, including tires, windshield wiper blades, and other manufactured goods dependent on oil-derived materials.

As the industry navigates these dynamics, staying informed and adapting to changing circumstances will be key to managing the impact on the freight and transportation sector. Subscribe to the Stay In Your Lane Podcast for continued insights into our industry’s most important trends.

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