Oil markets are showing renewed downward momentum following the latest US election results, as traders increasingly factor in the possibility of reduced military activity and easing tensions in the Middle East. This shift in market expectations is now reflected in the benchmark diesel price widely used to calculate fuel surcharges.

The US Department of Energy’s Energy Information Administration (EIA) reported a 16.5-cent-per-gallon decrease in its weekly average retail diesel price, bringing it to $6.127 per gallon. The new rate took effect on Monday and was published on Tuesday.

This marks the second consecutive weekly decline and brings diesel prices to their lowest level since October 12. Nevertheless, the market remains close to historically elevated territory. The series reached its record high of $6.529 per gallon on September 22, just seven weeks earlier.

The downward trend coincides with substantial losses in oil futures since Election Day. Contracts for ultra-low sulfur diesel (ULSD), traded on the CME commodity exchange, have weakened alongside other major oil benchmarks as investors assess the potential implications of a Democratic Congress and an administration that may become more reluctant to pursue further military action in the Middle East.

ULSD settled at $4.4216 per gallon on the first trading day of November. By Monday, the settlement price had fallen to $4.2148. At approximately 11:40 a.m. on Tuesday, the contract was trading at $4.1409 per gallon.

Crude oil followed a similar path. The international benchmark, Brent, fell to $92.57 on Monday, from a close of $104.77 a barrel on the first trading day of November. It was trading at $91.55 a barrel around 11:40 a.m. Tuesday.

Traders lose hopes of military escalation

One of the main factors that have led the market to re-evaluate oil prices is the changing geopolitical landscape.

“The war risk premium has been taken out of oil prices by traders quite effectively,” Amrita Sen, director of market intelligence at Energy Aspects, told Bloomberg Television on Tuesday.

Sen. said the trading activity before the election indicated that market participants were positioning themselves for a possible escalation of military operations after Election Day.

“People were positioning for a strike that was imminent,” she said, adding that the absence of such an escalation led to the subsequent sell-off.

The market has since adopted a more relaxed view, with traders more and more convinced that the United States will look to bring an end to the conflict regardless of which political party is in power. Sen said neither Democrats nor Republicans seem willing to continue the war.

Bank of America warns of ongoing supply weaknesses

But not all market analysts share this increasingly bearish outlook. Bank of America Merrill Lynch’s energy research team has pointed to longer-term supply risks for the global oil market, particularly after months of lost production, damage to refining infrastructure in the Middle East and Russia and continued dependence on US military support for flows through the Strait of Hormuz.

In a recent report, the team led by Francisco Blanch stated that the scale of global supply disruptions in 2026 was unprecedented.

“The scale of the production shortfall has surpassed anything seen in historical data going back to 1965, with global oil supply disruptions reaching record levels in 2026,” the analysts wrote.

The oil market was “supported initially by unusually high supply levels following several quarters of excess supply,” they said. These stockpiles helped cushion the first round of disruptions.

That protection, however, is now rapidly eroding. The report notes particularly large inventory withdrawals in China, as well as falling strategic reserves in OECD economies.

Bank of America’s analysis also factors in the combined impact of damage to global refining capacity and the continued drawdown of inventories. “The market has so far managed to absorb a very large physical supply shock, but its resilience to further shocks has been considerably impaired.

Hence, the analysts point out the trajectory of the US-Iran war as a key determinant of oil price movements in the next 12 months.

The differing assessments are a reflection of the uncertainty in the energy market. Certainly, expectations of reduced military escalation are putting immediate downward pressure on diesel and crude prices. But the underlying deterioration in global supply conditions may leave markets increasingly exposed to another geopolitical shock.