U.S. diesel fuel price responses to the global crude oil supply and demand

The objective of this study is to examine the monthly movements of U.S. diesel price for the period 1974-2017. We argue that the diesel price may be responsive to crude oil market fundamentals. The model employed includes the global demand and supply for crude oil, in addition to the inventory of crude oil and the level of industrial production for the U.S. The Structural Vector Autoregressive formulation and the Vector Error Correction model suggest that global demand shocks to crude oil, including the inventory of crude oil in the U.S. are primarily responsible for diesel price movements in the U.S., accounting for up to 30-70% of its variation.