U.S. strike on Iran's Qeshm Island whipsaws oil as diesel sits at $6.292

The oil market whipsawed on Tuesday after U.S. forces struck targets on Iran's Qeshm Island in the Strait of Hormuz, a reversal from a day earlier when talks about reopening the waterway had pulled crude lower. For truckers, the swing matters because diesel follows crude with a lag of a week or two, and the pump price is still far above where it was a year ago.

What happened

The Associated Press reported on Nov. 3 that the strikes came overnight and that a U.S. official described them as defensive, not a return to major combat. Brent crude jumped above $107 a barrel in the morning, dropped below $101, and was down 0.9% at $103.80 as of the AP's 10:13 a.m. Eastern update.

Bloomberg, in a Nov. 3 report carried by Transport Topics, said Iran's intermittent attacks on commercial ships continue. It put traffic through the strait at about 80% of prewar levels and said the U.S. blockade has sharply cut Iranian oil exports. Bloomberg Economics' Ziad Daoud said a surge in fighting could push oil to $120 to $130. That is one analyst's scenario, not a forecast from the market as a whole.

Where diesel stands

The Energy Information Administration's Nov. 2 weekly survey put the U.S. on-highway diesel average at $6.292 a gallon. That is down 6 cents from $6.352 on Oct. 26 and up $2.539 from a year earlier. GasBuddy's Patrick De Haan, cited by Bloomberg, put the election-day diesel average at $6.28.

Monday's crude drop on the talks was not yet in that EIA reading, and Tuesday's rebound will not show up until later weekly surveys. Next week's number is the one to watch.

What it means for carriers

Fuel surcharge schedules key off the EIA average, so the 6-cent decline trims this week's surcharge only slightly. Owner-operators buying at retail should not count on relief, since Tuesday's price action shows how quickly the direction can change. Carriers with thin margins should keep surcharge language current and avoid committing to fixed all-in rates without a fuel clause.

What shippers and brokers should watch

Expect fuel to keep moving surcharges in both directions in the coming weeks. Shippers booking spot freight should check whether quotes are all-in or linehaul plus fuel, because a swing in crude can erode a broker's margin on an all-in quote. Bloomberg also noted that high shipping and insurance costs around Hormuz keep fuel elevated even when crude dips.

For current retail prices by state, see PDI's diesel prices page.