In a market of untamed volatility, the most recent weekly diesel price from the Department of Energy/Energy Information Administration almost looks like owners of stores simply couldn’t work out what to do next.
Wholesale prices within the U.S. as measured by the ULSDR.USA data series in SONAR swung from a high of $3.288 a gallon on Aug. 10 to a low of $3.227 last Thursday before climbing back to $3.36 on Monday. Those forms of movements in wholesale diesel prices are highly visible to retail owners and may disrupt the decision-making on what price to placed on the pumps. Retail owners aren’t generally set as much as react to that kind of rapid movement.
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That might be the explanation why within the midst of such volatility, the pace of increases in retail diesel prices slowed previously week, in response to the DOE/EIA. The weekly price, used as the idea for many fuel surcharges, climbed just 1.1 cents a gallon last week to $4.389/g after 4 consecutive increases that ranged from 9.9 cents to as much as 22.2 cents a gallon. Those increases resulted in the value used for many fuel surcharges going up by 57.2 cents in 4 weeks; the most recent increase now puts it at 58.3 cents a gallon in five weeks.
Prices for ultra low sulfur diesel on the CME commodity exchange have led the best way within the volatility that shows up within the wholesale numbers. On Aug. 7, ULSD on the CME commodity exchange settled at $3.0155 a gallon. Inside two days, it was greater than $3.20. 4 days later, it was right down to $3.028. Three more days, it was just below $3.16. On Monday, the primary trading day after that, it settled down 4.35 cents a gallon to $3.1162.
That kind of volatility and the incontrovertible fact that even with some big drops in there the value overall has trended higher has fueled the priority amongst analysts regarding the state of diesel going into the harvest season after which the winter heating season, when heating fuels are chemically highly just like diesel. Last week’s EIA inventory report did little to quell that concern. During a time of the 12 months when stocks traditionally rise, inventories of ultra low sulfur diesel within the U.S. barely budged and stand at about 83% of where they normally are right now of 12 months.
The East Coast is starting to be a specific area of worry. In his weekly report, energy economist Philip Verleger, quoting OPIS price sage Tom Kloza, notes that two significant East Coast refineries are about to undergo heavy maintenance. Spring and fall are maintenance seasons within the refining sector.
Verleger quotes a recent report from Kloza that the Irving Oil refinery in Recent Brunswick, Canada, can be shut for about seven weeks, bringing to a halt a big plant that refines 320,000 barrels per day. “It’s a considerable supply source for the U.S. East Coast,” Verleger writes.
He also notes the planned closure of Monroe Energy, the relatively small 185,000-barrel-a-day refinery owned by Delta Airlines near Philadelphia. That shall be closed for about two months.
“Taken together, the closings may reduce supply by around 140,000 b/d (of distillates) for 60 days and cut East Coast inventory accumulation by seven to eight million barrels in comparison with the identical period in 2022,” Verleger writes.
The East Coast last 12 months already saw significant price premiums in comparison with the national average retail diesel price. In May 2022, riding on tight inventories then, the DOE/EIA price for the East Coast got as high as 33.4 cents a gallon greater than the national average. It then retreated, however the spread began climbing again in late fall of last 12 months, peaking at a 27.1 cents right after Christmas. That premium didn’t drop below 10 cents a gallon until April.
On this week’s data, East Coast retail diesel was just 2.4 cents a gallon greater than the national average after being 0.9 cents a gallon higher last week. There also isn’t any sign yet of a squeeze within the spot markets. In response to data from DTN, the spread between the us price on the CME and the value of spot physical barges in Recent York Harbor was 1.5 cents a gallon in favor of the barges at the beginning of August. Last week, barges were 1.5 cents a gallon lower than the futures price before moving up barely Monday.
The East Coast refining sector is insufficient to provide the needs of the market, and imports are needed. “The U.S. East Coast’s dependence on imports when all refineries there have been operating highlights the increased risk of extremely high prices occurring in the following few months during and after the refinery shutdowns,” Verleger says in his report.
That might be offset by more production within the U.S. Gulf Coast region, he adds. But that has declined also, Verleger notes, citing the incontrovertible fact that the sunshine sweet crudes coming out of the U.S. shale sector don’t produce strong yields of distillates resembling diesel.
Other spot markets within the U.S. should not showing signs yet of a physical squeeze.
But that doesn’t negate the incontrovertible fact that in July, the spread between ULSD and Brent, the world’s crude benchmark, averaged 31.3 cents. Up to now in August, that spread has been greater than 44 cents a gallon. It’s that kind of movement that’s resulting in the priority over what the approaching months hold for diesel prices.
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