The Department of Energy/Energy Information Administration's average weekly retail diesel price — the benchmark that drives most fuel surcharges — fell 14.7 cents per gallon to $6.382/g, its first decline in four weeks. The drop ends a three-week streak in which the price set a new all-time high every week.

The price is effective Monday but published Tuesday.

The retreat tracks a broader shift in oil markets: increasing reports that crude flows out of the Persian Gulf are approaching pre-war levels. As The Wall Street Journal reported, "Iran's ability to choke off oil flowing through the Strait of Hormuz—and use that as leverage in talks with the U.S.—is breaking down, raising the risk it will resort to military escalation to bolster its position."

Oil markets moved lower Tuesday on that consensus and on a more specific report from J.P. Morgan saying Persian Gulf oil flows were getting close to pre-war norms.

Crude is not the only barrel leaving the Gulf, though. According to reports citing J.P. Morgan, product exports remain only slightly above 50% of pre-war figures — a gap that could keep pressure on distillate supply even as crude normalizes.

One Middle East producer has sat out the recovery entirely: Iran. The U.S. blockade of its exports has effectively halted its shipments, according to various reports.

Futures market divergence

On the CME, ultra low sulfur diesel (ULSD) has retreated sharply from a recent high settlement of $5.262/g on September 16 — also the highest settlement since the Iran war began. The contract sank to a settlement of $4.6847/g Friday before rebounding Monday and Tuesday.

That rebound appears driven partly by the calendar. The October ULSD contract expires Wednesday, and short positions that rode the decline over the prior seven to eight trading sessions needed to cover those trades, likely pushing up the settlement in Monday and Tuesday trading.

The gain of more than 20 cents per gallon over those two days stood completely out of line with other markets. Both the international crude benchmark Brent and the U.S. benchmark West Texas Intermediate continued their decline Tuesday.

For carriers and shippers, the futures pullback — if it holds after October expiry — points to lower hedge costs and, eventually, softer surcharge math. The DOE benchmark's 14.7-cent drop will feed directly into fuel surcharge tables in the coming weeks, trimming linehaul-plus-fuel totals for truckload and LTL contracts indexed to the EIA number.

Texas opens door to dyed diesel on roads

In other news affecting diesel consumers, Texas Governor Greg Abbott signed a disaster proclamation allowing dyed diesel to be used on the road, beyond its normal agricultural applications.

The fuel is chemically identical to standard diesel but carries a lower tax burden; it is normally restricted to agricultural use.

Abbott also asked EPA Administrator Lee Zeldin to issue a temporary Clean Air Act waiver of federal ultra-low sulfur diesel rules. The practical impact is doubtful: most refiners long ago configured their systems to produce only ULSD, with little high-sulfur material, since that product has a limited U.S. market. It remains uncertain refiners would change that approach even if the waiver were granted.

With Gulf crude flows nearing pre-war norms but product exports still around half of pre-war levels, the path for diesel prices from here hinges less on crude supply and more on how quickly Gulf refining exports — and the expiring October contract — shake out.