As 2024 comes to an end, diesel prices continued a two-year decline. Looking at the forecast for 2025, how will the price at the pump fluctuate and will fuel costs help or hurt an anticipated freight recovery? Read on for a diesel price forecast.
As we did in last year's (or is it still technically this year's?) prediction piece, let's start by recapping the past 12 months. The average price per gallon of diesel as the calendar turned to 2024 was $3.88. As of the second week of December, on-highway diesel is averaging $3.46 a gallon - or 42 cents less than the start of the year. It was a less bumpy road down than prior years, but there was a bit of fluctuation built in. Here's the price chart from the Energy Information Administration (EIA):
With the royal blue representing the nation as a whole, it's clear that diesel did spend some time above $4 per gallon in late winter/early spring, before a decline began in May. There were a few smaller bumps - to repeat the analogy - after that, but it didn't spike again. The high for the year occurred in the two middle weeks of February when it stayed steady at $4.11 a gallon. While it's somewhat typical for a price increase around Valentine's Day, at the time, reports indicated the old standard gap between demand (higher) and supply (lower) were key contributors.
Also factoring in on an annual basis is the switch from winter mix to the more expensive summer mix gasoline. And refinery maintenance activities often occur during the early part of the year as well. An additional factor in the rising prices was optimism for an economic turnaround that, for the most part, failed to materialize. A few positive economic signals suggested demand may explode while stocks would take time to catch up, but it turned out to be a blip as prices never reached that peak again. In fact, in early February, predictions were that gas prices would shoot up for the rest of the year.
Revisiting our prediction article for 2024, the EIA projected diesel not to rise, but rather to continue falling. They were right about that, but - provided nothing massively changes over the next two weeks - off a bit on the extent of the drop. The actual average for this year to this point is $3.78 per gallon, 17 cents lower than the EIA's projection of $3.95, which also would've come in under the 2023 average of $4.22.
Diesel prices are both an influencer of the economy and influenced by the economy. So predicting diesel prices in 2025 requires prognostication about the state of the global economy - as well as anticipation for potential X-factors that could cause greater fluctuations. Getting right to it, the EIA's December Short Term Energy Outlook sees the average diesel price for 2025 coming in at $3.61 per gallon, a figure that would represent a decline for the third straight year - and massively lower than 2022's average of $5.
However, while the annual decline is expected to continue, within 2025, the first quarter has the lowest projection of $3.46, with the price of diesel climbing each quarter as the year goes on - to an average of $3.75 by Q4 (about 30 cents higher than the current price at the pump).
First, a further reminder of the four primary components that go into diesel prices:
The EIA is expecting a generally balanced energy market in 2025, with oil production globally projected to increase by 1.6 billion barrels a day, while U.S. production continues to go up as well. The almost perfectly flat line for 2025 in the figure above is an illustration of that expected balance.
CO2 emissions are expected to tick up a bit next year, with the key factors being coal-powered electricity needed for data centers, as well as a bump in demand from drivers. Globally, it's a similarly flat picture, with demand remaining relatively low balanced by some refinery capacity coming offline because of reduced profits to reduce the supply.
Natural disasters as always are hard to predict, but also somewhat likely to happen in some form each year. In 2024, the U.S. felt impacts from two major hurricanes, Helene and Milton, with damages to areas of Florida and North Carolina. Those storms, which hit within two weeks of each other from late September to early October, contributed to a jump of about $.09 a gallon. Disasters can impact oil production, diesel delivery and demand among other elements - both short-term and long-term - so they are always worth watching.
Geopolitical events continue to factor in as well, with the Russian incursion into Ukraine and the Israel-Palestine conflict - as well as additional offshoots - still ongoing. A second Trump Administration in the U.S. could influence pricing, too, whether through policy changes, how it influences production, its handling of inflation, etc.
There is greater optimism about the freight market heading into 2025 compared to this time last year, but it is still a bit tempered. Our prediction has things starting to look about normal by the latter part of the year, based on further expected Federal Reserve rate cuts, housing starts re-starting and manufacturing ramping up. All those would lead to greater transportation (and likely diesel) demand, and raise freight rates.
Diesel and linehaul are the main components of freight pricing, as diesel powers almost all freight movement around the world including the domestic modes of truck and intermodal. On a basic level, higher diesel costs mean higher freight costs for shippers, whether diesel is built into the freight rate or added as a fuel surcharge.
During this latest freight downturn, any spikes in diesel were hard on carriers, as they still had to keep rates low to keep customers. They in essence ate into already slim profit margins - and even contributed to exits of some smaller operations.
If the market does recover and diesel follows its projections, it should keep rates from going too high for shippers' budgets - and keep them from raising prices for consumers. It is important to note though, that many of the same demand generators for freight are in essence demand generators for diesel, so it will come down to supply in keeping diesel at a reasonable cost.
Whether you're filling up trucks or trains with diesel - or shipping freight via diesel-powered vehicles - in 2025, turn to us at InTek for help. Simply request a quote, and we'll get right back to you to discuss your situation. For more information about InTek, or logistics and supply chain issues in general, check out our Freight Guides.