Oil Holds Above $91 as Diesel Surge, Asia Demand Tighten Market

Front-month WTI crude oil held above $91 per barrel on Thursday, trading at $91.20 for a modest daily gain of 0.21%, according to midday price data. The global Brent benchmark was slightly lower at $95.48, while the discount for Bakken crude at the wellhead narrowed to $3.42 below WTI.

The primary pressure on markets remains a severe global tightening of diesel and other middle distillates. According to OilPrice.com, the U.S. national average diesel price hit $5.7832 per gallon on Thursday, just three cents shy of the all-time record set in June 2022. Patrick De Haan, head of petroleum analysis at GasBuddy, stated the record could fall by Labor Day, with Gulf Coast spot prices already at new highs.

The diesel crunch, a major driver for refining margins and crude demand, is attributed to crippled fuel supply from the Middle East and Russia due to ongoing conflicts, coupled with rising seasonal demand from the agricultural harvest. "The market is short- buyers bidding up every drop like a housing market with too few homes…higher retail diesel prices coming coast to coast," De Haan said.

Concurrently, strong physical demand for crude is emerging from Asia. Rigzone reported that refiners in India and China, the world's top two oil importers, are stepping up spot purchases of Middle Eastern crude, sending regional prices soaring. This buying spree further strains available global supply.

This combination of factors has analysts eyeing a potential milestone for Brent crude. Art Hogan, Chief Market Strategist at B. Riley Wealth, projected that the Brent price could hit $100 per barrel in the next week, according to a separate Rigzone report.

For Bakken operators, the current environment is supportive. The narrower differential of -$3.42 means a higher realized price for local crude, enhancing cash flow at current elevated WTI levels. Strong diesel cracks also incentivize high refinery utilization, supporting demand for Bakken barrels which yield a significant portion of distillates. However, the surge in diesel prices presents a double-edged sword, significantly increasing operational costs for drilling, completion, and transportation activities across the basin.

In related energy markets, natural gas continued to face downward pressure, trading at $2.90 per MMBtu, down $0.06 on the day.