By the numbers: diesel futures surging Tuesday to possible post-war high

If the ULSD price were to settle at that level later on Tuesday, it would be the highest ULSD settlement since military action against Iran began on the weekend of February 28-March 1. The current high post-war settlement is $4.6084/g on March 20.

With retail prices lagging futures prices, and with ULSD prices having taken a slide of a few days’ duration last week, the  Department of Energy/Energy Information Administration average weekly retail price fell 5.3 cts/gallon to $5.5999/g, effective Monday but published Tuesday. That’s only the second decline in that price in the last eight weeks.

The highest post-war DOE/EIA price was established a week ago at $5.562/g.

There was no particular single piece of news in the diesel market that led to the price climb Monday and Tuesday. It is a combination of a long list of developments that have sent diesel prices surging well above increases in gasoline and crude: loss of Middle East crude supplies that have physical characteristics conducive to producing a strong yield of diesel in a refinery; Ukrainian attacks on Russian refineries and export facilities, also which have an outsized exposure to diesel prices; and tight global inventories just as winter looms, as diesel is structurally highly similar to heating oil.

The recent increase in the price of ULSD on the CME commodity exchange, and concurrent increases in the physical price of diesel traded on a pipeline or barges in key markets, have erased the decline that led to this week’s drop in the DOE/EIA price.

ULSD on August 21 settled at $4.4948/g. The price then fell sharply the next two days on optimism for some sort of easing of tensions in the Strait of Hormuz, the latest in a long line of head fakes that might result in some increase in ships passing through that bottleneck but nothing that could be thought of as a more permanent resolution.

But prices began to climb soon after that, surging back to just under $4.50/g Friday before its even further leap higher Monday and Tuesday. 

The recent increase in the price of diesel in the futures market is likely to increase the chance that the highest post-war price for retail diesel published daily by the AAA also can be knocked off its perch.

The highest AAA price was $5.689 recorded on April 9. Tuesday’s price was $5.6325/g. 

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