All three legs of the diesel market are going through extreme volatility, and it showed up within the weekly benchmark price used for many fuel surcharges.
The typical weekly retail diesel price for ultra low sulfur diesel (ULSD) posted by the Department of Energy/Energy Information Administration rose 21 cents, to $4.109 a gallon. As large because the 21-cent jump was, it was only the sixth-largest since Russia invaded Ukraine almost two years ago.
Nevertheless, it was the biggest since a 22.2-cents-per-gallon increase posted July 31. It put the benchmark above $4 a gallon for the primary time since Dec. 4 and worn out all of the declines in the value since then.
Retail prices are the top results of movement within the futures and wholesale markets. The latter take their cues from the previous after which can add on or deduct additional movements depending on local market conditions.
Within the futures market, ULSD on the CME commodity exchange climbed 30.42 cents between a $2.66 settlement on Feb. 2 and last Friday’s settlement of $2.9642 a gallon. ULSD on Monday reversed that slide, which had run five consecutive trading days, and fell 4.46 cents, to $2.9196 a gallon.
It was in a number of the localized markets, nevertheless, where the craziest motion was going down.
In spot physical markets, trading for diesel is finished for diesel transported on either a pipeline or on a waterborne carrier like a barge or cargo. Trading is conducted as a differential to the CME price, and volatility prior to now two or three weeks has been extreme, in line with data provided by DTN.
For instance: ULSD on the Buckeye pipeline system was 45 cents lower than the CME price on Jan. 26. By last Thursday, it rose to minus 5 cents before falling back Monday to minus 17 cents.
The Chicago market, which has been most directly hit by the outage on the BP Whiting refinery in Indiana, was negative 57.5 cents a gallon on Jan. 26. That rose to negative 9 cents a gallon Wednesday and was negative 18 cents Monday.
The Gulf Coast market was negative 9.5 cents a gallon on Jan. 24. On Monday it was negative 1.75 cents a gallon.
Those kinds of swings impact wholesale prices, that are then fed through to retailers. On this run of upper wholesale and futures prices, retailers have wasted no time increasing their numbers on the pump.
Variations in the value movements have been dramatic, in line with the regional retail prices published each week by the DOE/EIA together with the national benchmark.
Within the East Coast’s Latest England and Central Atlantic areas, that are fed by ULSD tied to the relatively regular Latest York Harbor price, prices last week rose only 2.6 cents and 4.2 cents a gallon, respectively. But within the Lower Atlantic, a few of which could be fed by the volatile Buckeye system, prices were up 21.4 cents a gallon.
The Midwest was up 30.4 cents a gallon, not surprising given the outage at Whiting.
The relatively tame moves within the Gulf Coast led to a 16.3-cents-per-gallon increase there.
In California, the positioning of the very best prices within the country, the rise within the DOE/EIA price was just 12.9 cents a gallon. But that region could also be primed for higher prices; the differential for ULSD meeting the state’s more stringent environmental specifications was minus 15 cents lower than ULSD on CME on Jan. 26 but was plus 8.5 cents a gallon Monday.
Besides the outage at Whiting, diesel markets have been dealing once more with tight inventories.
U.S. stocks of ULSD within the week ended Feb. 2 fell to 118.9 million barrels, in line with probably the most recent weekly inventory report of the EIA. That could be a large drop for one week and comes after several weeks of increase off a recent low of 96.3 million barrels on Nov. 17.
The strength available in the market could be seen in its spread over crude. On a straight front-month basis, ULSD on CME rose to greater than $42 a barrel above the value of Brent, the world’s crude benchmark, last Friday. It fell back to about $40.60 Monday. Before that, it had not posted consecutive days greater than $40 since late October.
In an article on diesel markets published last week, Reuters senior market analyst John Kemp quoted Emma Howsham, an analyst at Wood MacKenzie, saying that inventories in the important thing North West Europe market are expected to fall over the subsequent two months. Howsham’s basis for the prediction was the beginning of refinery maintenance season later this month or into March, and “tight supply from key export hubs, and the Red Sea-Suez Canal disruption impact on flows into Europe.”
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