The weekly diesel price used as the basis for most fuel surcharges fell this week even as diesel futures climbed to a new post-war record high, underscoring the lag between wholesale market moves and retail benchmarks that many shippers and carriers use to calculate fuel charges.

Ultra low sulfur diesel (ULSD) on the CME commodity exchange settled Tuesday at $4.6773 per gallon, up 18.36 cents, or 4.09%.

The previous high settlement after the start of hostilities between Iran on one side and the U.S. and Israel on the other was $4.6084 per gallon on March 20.

Tuesday’s settlement also appears to be the second-highest in the history of the CME contract, which began life as a heating oil contract before becoming a ULSD contract as quality specifications between the two middle distillates narrowed.

The only higher settlement before Tuesday was $5.1354 per gallon on April 28, 2022, a few weeks after Russia invaded Ukraine. Because that settlement came on the next-to-last day of the May 2022 contract before expiration, it suggests the price was pushed higher by a short squeeze that left some traders scrambling to cover positions.

The following day, the last day of the May contract, the price fell by more than $1 per gallon, indicating that short-covering likely drove the prior day’s move.

Taken together, Tuesday’s settlement could almost be viewed as the highest “explanation-free” settlement in the history of the contract.

With retail prices lagging futures and ULSD prices having declined for several days last week, the Department of Energy/Energy Information Administration average weekly retail price fell 5.3 cents per gallon to $5.5999 per gallon, effective Monday but published Tuesday. That marked only the second decline in the price in the last eight weeks.

The highest post-war DOE/EIA price was set a week earlier at $5.562 per gallon.

John Kingston wrote on X: "Today's ultra low sulfur #diesel settlement on CME set a new post-war record at $4.6773/g, up 18.36 cts/g, increase of 4.09%. Previous post-war record was $4.6084/g on 3/20. Post-Ukraine invasion high is $5.1354/g, but I am pretty sure today's settle is 2nd highest after that. pic.twitter.com/7iVGpCYG3X"

There was no single news event that drove the diesel market higher on Monday and Tuesday. Instead, the move reflected a combination of developments that have pushed diesel prices well above gains in gasoline and crude: the loss of Middle East crude supplies with physical characteristics that produce a strong diesel yield in refineries; Ukrainian attacks on Russian refineries and export facilities, which also have outsized exposure to diesel prices; and tight global inventories just as winter approaches, given diesel’s structural similarity to heating oil.

That mix matters because diesel is central to freight, agricultural, and industrial activity, so changes in wholesale prices can feed into transportation costs even when the retail average moves more slowly. Recent gains in ULSD futures on the CME, along with higher physical diesel prices traded by pipeline or barge in key markets, erased the decline that had led to this week’s drop in the DOE/EIA price.

ULSD settled at $4.4948 per gallon on August 21. The price then fell sharply over the next two days on optimism that tensions in the Strait of Hormuz might ease, another in a long line of head fakes that could produce some increase in ship traffic through that bottleneck but not a more lasting resolution.

Prices began rising again soon after, climbing back to just under $4.50 per gallon on Friday before jumping further on Monday and Tuesday.

The recent increase in diesel futures is also likely to raise the chance that the highest post-war retail diesel price published daily by AAA could be surpassed. AAA’s highest price was $5.689, recorded on April 9. Tuesday’s price was $5.6325 per gallon.

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