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Diesel Prices Have Softened Significantly as the Risk Premium has Dwindled

Minneapolis, MN | June 27, 2023 | By: Steve Sinos, Blue Lacy Advisors, LLC

Still high by historical standards, ULSD has failed to reach the catastrophic highs forecast by inventory watchers during 2022.

Three Things

  1. Diesel prices are showing signs of mean reversion, despite remaining historically high. Prompt NYMEX Diesel (HO) has averaged $2.39/gal during June, down >20% from December 2022’s average daily settlement.

  2. Despite doomsday predictions from prominent analysts, low inventories neither resulted in sustained shortages nor extensions of the event-driven rally.

  3. This leaves the door open for tightening cracks if crude oil prices rally in the second half of the year.

Diesel Seasonality Overwhelmed by Price Reversion

Ultra Low Sulfur Diesel (ULSD) prices hit record highs last year as substantial risks were priced in. In the ten years leading up to the invasion of Ukraine, ULSD’s prompt contract never settled above ~$3.50. During 2022, it settled as high as $5.1354 and would trade at $4.00 or higher 43 times. As we settle into this risk regime, it looks like diesel consumers are getting some relief. Friday’s settlement of $2.5514 puts prompt ULSD well below the $4.5713 settle for the same day in June 2022. Despite this substantial drop, diesel prices remain high by historical standards. The five years preceding the pandemic saw the average June price closer to $1.75.

This summary is based off June 18, 2023

A free excerpt, such as this one, will be published on a delay periodically. This is an excerpt from Blue Lacy Advisors, LLC's (“Blue Lacy”) weekly commentary for clients, which is based on a collection of models, research/analytical subscriptions, and bespoke work. Each week Blue Lacy explores how market drivers included in these analyses might affect or be used in clients' planning, budgeting, and execution of strategy. Call Blue Lacy to make an appointment today!


Meet the Author!

Phone: +1-832-413-3124

Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.

He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.

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