The benchmark price of diesel used for most fuel surcharges fell for the second straight week against a backdrop of relative overall stability in futures prices even as intra-day swings can be volatile.
The Department of Energy/Energy Information Administration average weekly retail diesel price fell 4.3 cents/gallon to $5.596/g. It’s the second consecutive weekly decline, though the prior week’s drop was just 0.1 cts/g.
The latest DOE/EIA number puts it just 1.2 cts/g more than where it was on April 13. But since that time, the weekly price moves were down 20.5 cts/g, down 5.2 cts/g, then an increase of 28.9 cts/g before last week’s minuscule decline. All that means that buyers are paying about the same as they were five weeks ago, but the path there has been anything but consistent.
At approximately 12:30 p.m. Tuesday, ultra low sulfur diesel (ULSD) on the CME commodity exchange was at $4.1265/g, up 0.29%, on a day where prices had traded in a range of about 10 cts/g between low and high. Given how markets have fallen and risen since the Iran war began, that’s a relatively small amount of volatility for one day.
While there have been big moves in the price of ULSD on CME in the past two weeks, in particular with a gain of 19+ cts/g on May 12 followed one day later with a decline of 19+ cts/g, the reality is the settlement Monday of $4.1145/g was the first sign of a possibly new move to a higher level, being the highest settlement since the end of April.
There has been a growing focus on inventories. The EIA reported last week that U.S. inventories of all distillates–which includes other products such as heating oil but is about 90% ULSD–were at their lowest level in several years.
In the last two weeks, for the weeks ending May 1 and May 8, the EIA reported distillate numbers less than 103 million barrels. That appears to be the first time that has happened since 2005.
Jeffrey Currie, the long-time oil analyst at Goldman Sachs who is now executive co-chairman of Abaxx Markets and senior advisor at the Carlyle Group, has been the most prominent voice warning that oil markets are about to go through a period of severe inventory depletion as oil that had left the Strait of Hormuz weeks ago is now making its way to ports with nothing coming in behind it.
In the interview, Currie said the U.S. distillate market is near its minimum level of inventories that need to be held just to keep the system running.
“We are drawing inventories, and so you’re borrowing oil from the future right now, and you’re going to do it until you hit tank minimum tank levels,” he said in the interview.
Currie noted that distillate inventories were 120 million barrels in the U.S. a few weeks ago. “If you’re now at 102 million barrels, you’re going to be out,” he said, “out” being defined as not zero but that minimum operational level. “Maybe these people think that you can draw the full 100 million barrels. But even if you could, you’d still be out.”
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