Benchmark diesel up again, but by smallest amount in weeks

At $5.401/g, the DOE/EIA price is the highest it has been since a $5.141/g price posted November 28. 2022. The price was above $5/g for 32 weeks that year, following Russia’s invasion of Ukraine in late February of that year. The invasion is generally considered to have begun on February 24; the DOE/EIA price popped above $5 for the first time that year with its March 14 publication. 

While one of the great parlor games in the business media is whether the price of oil will reach $200/b, for some products it already is there.

The price for ULSD on CME settled Monday at $4.3643/g, which comes out to about $183.30/b. But Friday, the settlement was $4.4955/g, which translates to about $188.81/b.

The recent high settlement from March 20 of $4.6084/g translates to $193.55/b.

That price is for a barrel of diesel delivered into New York harbor a month from now. For example, trading Tuesday is for April barrels. But given that the calendar flips over to April Wednesday, it will be May barrels trading as the front month on the contract beginning that day.

But the market structure is backwardation, with the highest-priced barrel being the one with the most immediate delivery. That’s what happens in tight markets. And that means that spot physical barrels of diesel for delivery in the first days and weeks of April will likely be priced significantly higher than the May ULSD price on CME.

It is that spot physical price that is what fuel suppliers look at in setting their wholesale numbers, depending on location. So for example, a Milwaukee wholesale supplier would set their price on the basis of Chicago spot diesel; an Atlanta wholesaler’s number would be based on the Gulf Coast, as supplies from that region travel into Atlanta via the Colonial Pipeline, and so on through the major spot markets in the U.S., which also include the New York harbor, Los Angeles and a Midwest area called Group 3.

Those wholesale prices are what the retailers see, and set the direction of movements at the street level.

Jeffrey Currie, long-time energy analyst and Chief Strategy Officer of Energy Pathways at The Carlyle Group, told a recent television interview that those sorts of prices already are here. The process, he said, should be called “molecular contagion.”

“Last week we were talking about shortages in Singapore where jet fuel spiked to $230 a barrel,” he said. “This week it’s in Rotterdam. Rotterdam is $220 a barrel, Thailand, Philippines, New Zealand, Australia. So this thing’s going intercontinental.”

He added that the spread between some of these physical prices across various markets has disappeared or shrunk. 

“There’s no more price spread, there’s no more spare battles, there’s no policy fix, and it’s just physics,” he said. “These are physical supply chains, and that idea of financialization and the ability to print money doesn’t apply here. You can’t print molecules.”

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