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Benchmark diesel price drop masks underlying strength in commodity markets

ULSD on CME has increased 9 of the past 10 days; diesel climbing as other oil markets slide

The ninth consecutive week of a decline in the benchmark Department of Energy/Energy Information Administration average retail diesel price does not begin to tell the story of what is going on in the broader diesel market.

A decline of 0.02 cents per gallon brought the benchmark down to $4.909 a gallon. It’s the lowest price since March 7, a $4.849-per-gallon price that was obliterated the following week as diesel prices began to soar in the wake of the Russian invasion of Ukraine. In the short term, the nine-week decline has taken the DOE/EIA price down from a peak of $5.81 per gallon recorded June 20. That price is used as the basis for most fuel surcharges.

But it is on the CME commodity exchange where movements in the price of diesel should be worrying consumers.

On a day when crude oil and gasoline fell hard, as did broader equity markets, ultra low sulfur diesel stood out as it continued to climb. An increase of 7.57 cents a gallon to $3.7762 marked a 2.05% increase and put the futures price at its highest level since a July 1 price of almost $3.94 a gallon.


More significantly, ULSD has risen in nine of the past 10 trading days. From a price of $3.1791 a gallon on Aug. 8, diesel now has tacked on almost 60 cents. 

The increases in diesel while crude and gasoline are falling may seem illogical. But diesel can be a substitute for natural gas in many applications, and natural gas prices — as well as prices for electricity made from natural gas — are rising to almost unprecedented levels. 

Bloomberg reported that the Dutch front-month electricity contract, considered the benchmark price in Europe for electricity, was up 13% on the day at 276.75 euros ($275.14), which it said is 15 times more than what would be considered normal for this time of year. Bloomberg’s headline writers called the events of the day an “energy panic.”

Meanwhile, U.S. Henry Hub natural gas futures on CME settled at $9.38 per million BTUs. They started the year at less than $4. Outside of a brief two-day spike in 2021, during the Texas freeze, natural gas prices have not settled above $10 since 2008.


The relative movements between gasoline and diesel are sending the spread between the two contracts on CME to almost unprecedented levels. The spread Monday blew out to more than 88 cents a gallon, an increase of about 20 cents on the day. That spread was as low as 13 cents in late July.

ULSD did trade at a spread of more than $1 a gallon over diesel in late April. But that was a function largely of an end-of-month squeeze on the May ULSD contract, which like gasoline expires at the end of the month.

With eight trading days remaining before the September ULSD contract goes off the board, it is possible that a squeeze may be developing. But given the craziness of natural gas and power markets, the rise in diesel prices as crude and gasoline lag makes sense.

One positive from that spread: It incentivizes refiners to produce as much diesel as possible. The recent record yield of non-jet distillates from refineries was 38.1% of all output, when refiners sought to make as little gasoline and jet fuel as possible given the collapse in demand due to the start of the pandemic. In April 2020, gasoline yield, according to the EIA, was 40.7%; in May, the latest month for which the EIA has data, it was 45%, a figure that is still on the low side compared to normal.

At the start of the pandemic, jet output posted two months of 4.7% and 3.8%. More recently, that has been above 10%. Given the demand for jet fuel and gasoline are no longer in the pandemic-level basement, getting diesel output back toward that 38% mark will be largely impossible. 

How much it can increase over the roughly 30% that was recorded in May is unclear, but it does appear that given natural gas prices and the potential for switching, the world is going to need that number to rise and prices are creating an incentive to make as much as possible. 

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One Comment

  1. Tom

    Thanks John, I started hauling diesel and gas for an FS company about two years ago and they wanted me to start doing the contracts for customers! Been a headache, I just stumbled across Freight waves and I’m hoping reading your articles I can do a decent job saving my customers money with contracting! I feel bad for them cause the contract price was down to $3.70 a couple weeks ago! We go off NY harbor and do .50 markup! Now looking ahead, today it’s at $4.32. With your insight I’m hoping I can get a better grip on when to advise my customers to contract, mostly farmers and some smaller trucking companies! Thank you again, I look forward to reading your articles as they come out!

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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.