Forces at work within the economic structure of the oil refining business seem to be indicating the beginning of a stable market of softening of diesel fuel prices over the coming years — barring catastrophic geo-political upheavals.

Market watchers say what appears to be a routine price correction in diesel prices from wholesale and fleet orders to the retail pump likely has deep roots within the internal pricing models used by the oil industry on how much diesel fuel to produce vs. other medium distillate products such as heating oil and jet fuel.

Cassian Holt of web-based Morning Overview says the changes involve how much of a premium the market is willing to pay for the fuel relative to crude oil prices. Holt notes the benchmark diesel price logged its steepest decline in 2 years, falling 9.3 cents per gallon to $3.665, a move that he says should have produced industry headlines. Instead, the move was quietly absorbed — indicating diesel’s historic premium pricing power may be ebbing, as the fuel is apparently being accepted more on a commodity level than a premium benchmark. Holt writes when a market that recently commanded a premium suddenly trades like any other oversupplied economy, “it is a sign old assumptions about scarcity and structural tightness are breaking down.”

New assumptions for U.S. refiners may be factoring in renewed domestic petroleum production, OPEC’s seeming abandonment of restricted pumping, and the wildcard of the effects of the removal of Nicholas Maduro as head of Venezuela’s government – and nationalized oil industry.

Refiners will tell you the cost crude oil accounts for about 20% of the ultimate price of diesel fuel, and “supply and demand” forecasts for U.S. benchmark Brent crude is expected to fall from the high $60s in late 2025 to $52 per barrel in 2026. Couple that with refinery analysts’ apparent bearish outlook on diesel’s place as a premium diva in their decision making on refinery output, and one can make the case it will take more barrels of diesel fuel loaded out of refineries to maintain financial volume. More diesel fuel available generally means lower diesel fuel prices.

The Caribbean Connection

Throughout much of the past several years domestic supplies of diesel fuel have been tight because of significant exports of U.S. fuel to Europe and Asia, but events surrounding the removal of the Maduros from the South American oil industry provide the U.S. with increased access to heavy crude oil (for which Gulf Coast refineries are specifically-tuned to handle) and a bit more leverage on oil prices.

For several years China has been buying crude oil at rates far beyond its annual consumption, a move defense analysts say is likely aimed at stockpiling for eventual action against Taiwan. That buying spree has largely been supplied by what the industry calls “dark oil” – bargain-basement crude supplied by shadow tanker fleets dealing in so-called “sanctioned oil” — from cash-strapped but oil-rich nations like Venezuela and, in the Middle East, Iran. With those supply lines being severed by U.S. Navy and Coast Guard presence in the Caribbean, the deeply discounted supply chain to South America — for both China and India — has been compromised

In mid-January, Reuters reported Valero and Phillips 66 both bought cargoes of Venezuelan crude from the international trading house, Vitol, delivered at a discount from Brent crude at about $9 per barrel. Vitol and its rival, Trafigura, were the first firms awarded licenses by the U.S. government to trade Venezuelan crude after Maduro’s ouster. While both U.S. refiners have purchased Venezuelan crude in the past through Venezuela’s state oil company’s partner, Chevron, the January purchases mark the first to be channeled through the recently-authorized trading houses.

U.S. Energy Secretary Chris Wright explained initial sales of Venezuelan heavy crude worth about $500 million had been negotiated at a total discount of $15 per barrel against Brent crude. Shipping sources say transportation of the oil to U.S. gulf refineries will cost $2.50 to $3.50 per barrel, leaving the trading houses with a margin of $2-$4 per barrel.

He says Venezuela’s production and exports are expected to have a “dramatic increase” in the coming months.

In mid-February Reuters reported Valero Energy was set to buy up to 6.5 million barrels of Venezuelan crude in March for its Gulf Coast refineries – making it the top foreign refiner of the OPEC country’s oil since the Maduro incident. That figure would surpass Chevron as the top U.S. refiner of Venezuelan crude.

U.S. government data shows before sanctions were imposed in 2019, several large U.S. Gulf Coast refineries bought and processed up to 800,000 barrels per day of Venezuela’s heavy crude.

With more direct access to crude oil for which coastal U.S. refineries are adept at processing, and additional global oil supplies flooding the market, supply-and-demand ultimately points to lower diesel fuel prices.

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