Diesel Drops 17 Cents to $5.35/Gal, Lowest Since March

Why did diesel fall so sharply this week?

The DOE/EIA benchmark diesel price dropped 17.3 cents per gallon to $5.35/gal in the week ending June 2, the lowest level since March 23 when prices were climbing after the Israel-U.S./Israel coalition military confrontation began. That March 23 price was $5.375/gal. Before the war started March 4, diesel sat at $3.897/gal.

The 17.3-cent drop was the second-largest weekly decline in this volatile cycle. Only April 20, right after the ceasefire announcement, saw a bigger fall at 20.5 cents per gallon.

Ultra low sulfur diesel futures on the CME fell from $4.1625/gal on May 19 to $3.4886/gal by Friday's settlement, a 67.4-cent slide in two weeks. Traders are pricing in talk of a peace deal and a potential reopening of the Strait of Hormuz, which has kept crude and refined product flows constrained since March.

Regional diesel prices show refinery recovery

The national average masks wide regional swings. New England diesel fell just 6.8 cents per gallon. The West Coast excluding California dropped 7.7 cents. The Midwest, which had been hit by refinery outages, saw diesel fall 23.1 cents per gallon as those facilities came back online.

That regional volatility may explain why the AAA daily average for Monday stood at $5.448/gal, nearly 10 cents higher than the DOE/EIA benchmark effective the same day. The two surveys use different station samples and timing windows, but a 10-cent gap is unusual even in a volatile market.

What this means for fuel surcharges

Most carrier fuel surcharge tables peg to the DOE/EIA benchmark, so this 17.3-cent drop will flow through to settlements in the next billing cycle. A truck running 2,500 miles per week at 6 mpg burns roughly 417 gallons. At 17.3 cents per gallon, that's $72 less in fuel cost per truck per week, or about $3,744 per truck annually if the price holds.

But fuel surcharges lag spot diesel moves by a week or more, and many contract FSC tables update monthly. Fleets that locked in higher FSC rates in April and May are still collecting on those while paying lower pump prices now. That gap won't last if diesel keeps falling or if another supply shock reverses the trend.

How long the drop lasts depends on Hormuz

Diesel was at $3.90/gal before the war. It spiked to a cycle high near $5.70/gal in late April as refineries scrambled for feedstock and the Strait of Hormuz stayed partially closed. The current $5.35/gal benchmark is still 37% above the pre-war level.

If peace talks produce a full reopening of Hormuz and Gulf crude flows normalize, diesel could fall another 50 to 75 cents over the next quarter. If talks stall or another refinery goes offline, the price floor is fragile. Futures traders are betting on the former, but the 67-cent drop in two weeks already prices in a lot of optimism.

Small fleets should watch the CME ULSD contract as a leading indicator. When futures move 20 cents or more in a week, the DOE benchmark usually follows within 10 days. The retail price is a lagging number, useful for FSC billing but not for planning fuel buys.

Volatility makes fuel hedging harder for small fleets

A market that swings 20 cents per gallon in a week is tough to hedge if you're running five or ten trucks. Fuel card programs with price-lock features typically cap the lock period at 30 days, and the fees eat into savings when prices are this unstable. Most owner-operators and small fleets are riding spot diesel prices with no hedge, which means they're exposed to both the upside (lower costs when prices fall) and the downside (a sudden spike if Hormuz closes again or a refinery fire hits).

The gasoline spike in early May showed how fast fuel costs can move when supply tightens. Diesel followed a similar path, and the current drop is the mirror image. Fleets that survived the April-May surge by cutting miles or parking trucks are now seeing relief, but the relief is only as durable as the Hormuz reopening talk.

The bill for a 10-truck fleet

A 10-truck fleet running 25,000 miles per week at 6 mpg burns about 4,167 gallons weekly. At $5.35/gal, that's $22,294 in fuel cost. Two months ago at the April peak near $5.70/gal, the same mileage cost $23,752, a difference of $1,458 per week or $75,816 annually.

If diesel falls another 50 cents to $4.85/gal (still 25% above pre-war levels), weekly fuel cost drops to $20,210, saving another $2,084 per week versus today's price. That's the range small fleets are planning around: best case, diesel settles near $4.85/gal by August. Worst case, Hormuz talks collapse and diesel climbs back above $5.50/gal by July.

Fuel surcharge recovery depends on contract terms. Fleets running spot freight or short-term contracts can renegotiate FSC tables now to lock in the lower benchmark. Fleets on annual contracts with quarterly FSC reviews won't see the benefit until the next reset, which could be 60 to 90 days out.