Week in Review: Prices Soften Despite Tight Supply and Solid Demand

Diesel prices across fuel markets softened this week, even as fundamental indicators point towards potential increases. A growing disconnect between real-world supply-demand dynamics and broader economic sentiment continues to rattle the energy market, particularly for diesel.

Diesel inventories in the U.S. dropped last week to 115 million barrels, 6% below the five-year average and 13% below the ten-year norm, according to the U.S. Energy Information Administration (EIA). Across the Atlantic, inventories at Europe’s ARA refining hub are also declining, down 12% since early February. While still slightly above the five-year average, they’re far below the longer-term ten-year average.

This supply crunch is compounded by reduced diesel exports from Russia, caused by refinery maintenance and Ukrainian attacks on infrastructure, alongside slower European diesel imports. Meanwhile, U.S. sanctions on Chinese entities for importing Iranian oil worth over $500 million, some linked to the Houthis and Iran’s defense ministry, further tightened the market, pushing futures higher. Ukrainian President Zelenskiy signaled openness to U.S. investment in Ukraine’s energy sector, while broader market sentiment remains cautious amid ongoing geopolitical tensions and uncertainty around Trump administration policies. A temporary 30-day ceasefire between Russia and Ukraine has eased immediate concerns over energy infrastructure risk.

On the demand side, consumption remains solid. In the U.S., the four-week average distillate demand hit 4 Mbpd, which is up 8% year-over-year and aligns closely with five-year norms. European industrial output rose 0.8% in January, and with increased infrastructure and defense spending expected, diesel consumption is likely to hold firm.

Adding to the complexity, President Trump’s recent closed-door meeting with oil executives sparked industry conversations around energy independence, permitting reform, and the role of tariffs. While the administration emphasized growing domestic production, energy executives quietly voiced concerns that trade tensions and policy volatility are clouding the investment landscape.

Meanwhile, the Federal Reserve kept interest rates steady this week, citing “unusually elevated” uncertainty. Though officials still project two rate cuts this year, their revised forecasts show slower GDP growth (1.7%) and slightly higher inflation (2.7%). The Fed’s cautious stance echoes broader market sentiment—optimism is muted by policy unpredictability and shifting global dynamics.

Prices in Review

Crude prices opened the week at $67.35 and saw modest fluctuations throughout the week. Tuesday saw a slight uptick to $67.40 before dipping to a weekly low of $66.72 on Wednesday. Prices moved up on Thursday, climbing back to $67.29, and continued upward momentum into Friday, opening at $68.35. Week-over-week, crude prices rose by $1.00, marking a 1.48% increase.

Diesel prices opened at $2.1753 on Monday and trended upward throughout the week. After a modest gain to $2.2003 on Tuesday, prices held steady on Wednesday at $2.1953. A stronger rally took hold on Thursday, pushing prices to $2.2376, followed by further gains on Friday with an opening price of $2.2599. Overall, diesel rose by $0.0846 for the week, representing a 3.89% increase.

Gasoline prices opened at $2.16 on Monday and experienced modest fluctuations throughout the week. Prices climbed to $2.1786 on Tuesday before dipping slightly to $2.1630 on Wednesday. A mild increase followed, with prices reaching $2.1686 on Thursday and closing the week up at $2.1976 on Friday. Overall, gasoline prices rose by $0.0376 for the week, marking a 1.74% increase.