Already up over 75 cents per gallon compared to the same period in 2010, the cost of diesel in the U.S. could spike higher if the ongoing unrest in Libya continues to fuel a surge in global oil prices.

Brent oil futures increased $1.53 to $107.27 per barrel today, following a 6% spike on Monday that lifted that benchmark to a peak of $108.7 – it’s highest price since September 2008. Libya is the world’s 12th largest oil producer and its oil production and refining activities are now effectively shut down due to massive civil protests being waged against that country’s dictator of over 40 years, Col. Moammar Gadhafi.

“Everybody is looking right now at Libya because it’s a significant oil producer,” Christophe Barret, global oil analyst at Calyon in London, told MarketWatch. “That is the main factor supporting prices. And then you have the unrest continuing in other countries in the region.”

“Oil is up some $8 since Friday,” Denton Cinquegrana, editor-west coast spots for the Oil Price Information Service, told Fleet Owner. “There is a lot of catching up to be done at the wholesale and retail level over the coming days.”

Libyan output is roughly some 1.7 million barrels per day (b/d) and much of that oil goes to Europe.
“So any sort of force majeure is going to send people scrambling,” Cinquegrana added. “Remember the oil will always go to the highest payer. So if European refiners are refining Libyan oil and there is a disruption they will have to find oil from somewhere else.”

On top of that, unusually cold weather in the Northeast U.S. and Europe, the world's two largest heating oil markets, increased heating oil demand early in the season on both sides of the Atlantic, according to the Energy Information Agency (EIA) – adding more demand pressure to a supply of oil distillate from which diesel fuel is also refined

U.S. residential heating oil prices have increased by 68 cents per gallon since the beginning of October last year, the EIA noted, and though heating oil prices increased in seven out of the previous 10 years through this point of the season, the average increase has only been about 28 cents per gallon.

As a result, average prices for U.S. diesel fuel were already trending higher, before the unrest in Libya began. The average price for diesel in the U.S. is up 20 cents since the beginning of January, climbing to $3.53 per gallon from $3.33 per gallon, and is now up over 75 cents per gallon compared to the $2.75 average price attained in Feb. 2010, according to EIA’s data.

“Most world and domestic crude oil prices have also increased by $18 to $19 dollars per barrel, about 43 to 45 cents per gallon, during this period, which in addition to the tighter distillate fuel supply-demand balance, has resulted in higher petroleum product prices,” the agency said.

OPIS’ Cinquegrana also noted that oil pricing today is much more in line with what happens in the world’s equity markets now and thus is far less subject to traditional supply-and-demand pressures. That means events such as what is occurring in Libya now can affect pricing dramatically, even if that the supply of oil is only marginally affected.

“Oil prices – and the prices of the fuels refined from it – now react more and more to other economic trends than pure supply-and-demand factors,” he said.