Benchmark diesel price falls below $4/gallon mark

The benchmark price used for many diesel surcharges crashed down through the symbolic $4-per-gallon mark for the primary time since February 2022, at the same time as the broader futures market suddenly has posted significant gains after recent declines. 

In coming in at $3.922 a gallon, the Department of Energy/Energy Information Administration posted the largest one-week decline since just before Christmas. The 9.6 cents-a-gallon drop was the most important since a 15.8-cent decline on Dec. 19. It also marked the thirteenth time prior to now 14 weeks that the value has dropped. 

The last time the DOE/EIA price was lower than $4 was Feb. 7, 2022. Per week earlier was the last time it was below Monday’s price, coming in on January 31, 2021 at $3.846/g.

Markets then began moving higher, in anticipation of the Russian invasion of Ukraine, which took place on Feb. 24. Retail markets as measured by the DOE hit a peak of $5.81 a gallon on June 20, so the most recent price marks a decline of $1.888 a gallon since then. 

However the decline Monday comes as futures markets suddenly have turned higher in only the past three trading days.

When ultra low sulfur diesel on the CME commodity exchange settled Wednesday at $2.2323 a gallon, it marked the bottom first-month settlement since December 2021. 

But since that day, ULSD and other oil prices have posted significant gains. Monday’s settlement at $2.3777 a gallon marked a gain of 14.54 cents in only three trading days.

There was no significant news driving oil markets higher. A lot of the reasons cited by analysts have tended to deal with macroeconomic aspects, corresponding to last week’s healthy jobs report that may make the Federal Reserve hesitant to placed on the brakes.

The one specific change within the oil supply/demand picture got here prior to now few days when the Canadian province of Alberta declared a state of emergency as a result of wildfires which have shut in 185,000 barrels of oil equivalent per day, in accordance with various news reports.

That quantity is about 2% of Canada’s every day output, the reports said.

If there may be a very bullish sign coming out of the diesel markets, it’s inventories. U.S. inventories of ultra low sulfur diesel declined within the week ended April 28 to 99.62 million barrels. That figure is never lower than 100 million barrels, though it did get to that level last spring and in the autumn. Each those periods saw retail diesel prices well above $5 a gallon; now with inventories that low, they’re lower than $4 a gallon.

And so they are more likely to get tighter. On the analyst call for the first-quarter earnings at Marathon Petroleum (NYSE: MPC), Brian Partee, the corporate’s senior vp for clean products, said the marketplace for diesel in agriculture is anticipated to be a “strong season.” 

On the identical call, Marathon CEO Michael Hennigan said the corporate is seeing diesel demand in Latin America up 10% from last 12 months and China is up 4%. 

Meanwhile, Brian Mandell, an executive vp at Phillips 66 (NYSE: PSX),  also said a whole lot of refineries are running maximum gasoline output, which implies less distillate and diesel being produced. As he said, “This bodes well for helping firm up distillate through the summer.”

The recent decline in diesel futures prices has seen diesel run stronger than increases in crude. The spread between front-month Brent crude and ULSD was about 54.4 cents a gallon Monday, after being under 49 cents a gallon just six days earlier. 

One other place where diesel is robust is on the retail level relative to wholesale prices. The FUELS.USA data series in SONAR, which measures the spread between retail and wholesale,  stood Monday at slightly below $1.50 after being as high as greater than $1.57 a number of days ago. While that spread has been highly volatile because the Russian invasion of Ukraine and before that, the present levels are higher than historic norms, which are likely to be within the $1 to $1.10 level. That means that while retail diesel prices may get pushed higher by increases within the futures price and by extension wholesale prices, there could also be downward pressure coming from retail prices moving closer to their historic spread against wholesale numbers.

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