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A first since September: Benchmark diesel price up 2 straight weeks

Overall increases have been muted, but other indicators suggest growing diesel strength

The benchmark used for most fuel surcharges rose for the second week in a row. (Photo: Jim Allen/FreightWaves)

After months of almost steady decline, diesel prices are showing signs of having hit a bottom, at least relative to crude prices.

The weekly average retail diesel price published by the Department of Energy/Energy Information Administration, used as the basis for most fuel surcharges, rose Monday by 3.2 cents a gallon to $3.899. It marked the second consecutive weekly rise in the price. It also was the first time since the weeks of Sept. 11 and Sept. 18 that two consecutive gains were posted.

Prices have risen now in four of the past seven weeks. However, the increases have been relatively muted. Combined with the three decreases in that stretch, the end result is that the DOE/EIA diesel price has barely risen during that time. On Dec. 18, the price came in at $3.894 a gallon, just a half-cent less than Monday’s price. 

That strength isn’t coming from the crude market, which continues to languish. While crude benchmarks rose Monday, its settlement just under $80 a barrel is down $2.86 per barrel in just four trading days. 

But ultra low sulfur diesel on the CME commodity exchange has fallen at a slower rate. It settled Monday at $2.7248 a gallon, an increase of 6.48 cents, though it is down from a recent high of $2.8434 on Jan. 26.

Those movements mean that the spread between crude and ULSD has strengthened, particularly on Monday. That spread rose to roughly 86.8 cents a gallon Monday, up almost 5 cents. On Jan. 24, the spread was about 77.6 cents a gallon.

There are other signs of diesel strength. Spreads between the CME price for ULSD and the price of diesel at key physical trading hubs have been widening, according to DTN.

Diesel barrels on the Buckeye Pipeline, a key artery that runs between the East Coast and Pennsylvania and Ohio, were 45 cents per gallon below the CME ULSD price on Jan. 26.On Monday, DTN reported that spread at minus 11 cents per gallon.

In Chicago, a minus-13-cents-per-gallon differential had tightened sharply since a minus-57-cents-a-gallon spread on Jan. 29.

The all-important Gulf of Mexico market also has strengthened, though not by a large amount. DTN reported the spread today at minus 6.65 cents a gallon, down from minus 8.75 cents a gallon on Jan. 29.

But differentials have been little changed in the New York Harbor and Los Angeles markets. 

The weakness in crude markets Monday, even as ULSD was rising, was likely tied to two factors.

First, Saudi crude prices for March, released on Sunday, were neutral to slightly more aggressive. Significant reductions in the Saudi price formulas in January (for barrels sold in February) triggered a significant sell-off. The prices that came out over the weekend were mostly unchanged, but where they did not hold steady, they were slightly lower, by an amount that could not be described as aggressive.

Second, the dollar has been strengthening. The DXY index, considered the most important measure of dollar strength, has risen from just under 103 late last week to almost 104.5 Monday. Oil prices tend to move inversely to the strength of the dollar. 

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.