As we near the end of a volatile 2022, who would have thought NYMEX diesel prices would be trading at pre-Russia-Ukraine war levels? The answer is not a lot of people, yet here we are.
NYMEX diesel prices are trading at $2.8860/gallon today, right at the levels we were trading at on February 24th when Russia invaded Ukraine. Despite many pundits expecting that war to be relatively short-lived, here we are more than 9 months into the war and it is still going on. Even though the battle continues between the two nations, diesel prices have given back all their gains, which at one point had us trading at $5.8595/gallon, almost an astounding $3.00/gallon higher from where we are today.
Who’s most to blame for this sensational drop? China. China’s crude oil demand has not recovered to pre-pandemic levels due to its zero-COVID strategy. Meaning that its cities and industrial output still don’t have the demand back to 2019 levels despite much of the rest of the world being back to “normal.” Crude oil prices for much of this year have been buoyed due to the war and hope that China will fully re-open, however, expectations are that China will not return to normal oil consumption until this spring.
Coincidentally, Chinese President Xi Jinping is making a three-day visit to Saudi Arabia this week to meet with Saudi Arabia’s King Salman bin Abdulaziz and his government. There is talk that they will discuss how to streamline oil supply and refined product supply since China is the world’s largest consumer and Saudi Arabia is the largest producer.
At the end of the day, diesel is a commodity and it comes down to supply and demand. At this point, demand is not being sustained and so therefore the market is selling off until big buyers appear. China is the large discretionary buyer; so we need to keep an eye on them and their COVID strategy to see where we go from here from a price perspective.
China’s Xi to visit Saudi Arabia to ‘bolster ties’ (msn.com)
