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Despite wild diesel futures market, benchmark DOE/EIA price up only slightly

Retail prices far slower to react to wholesale and commodity moves on the way up and down

Photo: Jim Allen/FreightWaves

Despite five days of significant increases in the futures price of ultra low sulfur diesel (ULSD), the benchmark diesel price published by the Department of Energy’s Energy Information Administration rose just 2.8 cents a gallon Monday, to $5.101.

The small move in the face of a sharp increase in the CME ULSD price shows that while diesel consumers may be frustrated when the pump price doesn’t fall as fast as the futures price of diesel and gasoline, it doesn’t go up all that quickly either.

The increase of 3.6 cents a gallon Monday on the CME brought the settlement to $3.8908 a gallon. That is the highest level since a settlement of $4.1146 on March 25. But the Monday increase was the smallest in the past four trading days, which recorded increases, respectively, of 19.67 cents, 25.4 cents and 11.64 cents a gallon. The end result is that the Monday settlement was 62.31 cents more than it was a week ago.

Wholesale prices reflected much of that move. The national average wholesale diesel price as reflected in the ULSDR.USA data series in SONAR between Tuesday and the start of Monday rose 51.4 cents a gallon, capturing much but not all of the increase in the diesel futures price.

But as the DOE/EIA number published Monday showed, retail can be slow to react on the up side as well as the down side. That has been particularly true in the volatile market that has gripped oil before and after the Russian invasion of Ukraine, as evidenced by the wild swings in the FUELS.USA data series in SONAR. It is a simple spread between the average wholesale and retail price nationally or in regional markets. Its movements between all-time highs and all-time lows are unprecedented and reflect the fact that retailers are not programmed to make retail changes as sharp as the wholesale price moves they are facing in their acquisition costs. 

The DOE/EIA benchmark price a year ago was $3.124 per gallon.

Oil markets Monday were hit by two new pieces of bullish news. Libya’s National Oil Co. declared force majeure on shipments from one of its biggest fields. The reason cited was vague–unauthorized persons entering the facilities and impacting production–and the precise size of the loss was uncertain, according to media reports. That in part is because Libyan output fluctuates significantly month to month and has ever since Moammar Gadhafi was deposed and killed in 2011. But rough estimates are that it could take another 300,000 to 400,000 barrels per day off the market. Current Libyan production was estimated by S&P Global Commodities, which includes the Platts news and pricing service, at just over 1 million barrels a day in March. 

The other factor that might have impacted diesel in the market on Monday could be seen in the domestic natural gas market, which briefly crossed the $8-per-1,000-cubic-feet price before settling at $7.82/Mcf, a whopping 52-cent increase on the day. The price a week ago was $6.643/Mcf.

Natural gas now has gone from about $6/Mcf in October to about $3.40/Mcf in the week leading up to Christmas, followed by the recent surge that has pushed it past those October levels.

The growing export of liquefied natural gas, driven by higher European demand to displace Russian sources, is starting to kick back into the U.S. market and tighten domestic supplies.   

On an energy equivalent basis, natural gas is still significantly cheaper than diesel and other distillates, suggesting that concern that natural gas might be displaced by distillates such as diesel or heating oil to generate electricity or heat is unlikely. But it does remain another bullish factor in the market. 

In other supply and demand news from the past few days, Russian news agency Interfax reported last week that Russian oil production declined 7.5% in the first half of April compared to March. 

What isn’t clear is the base that dropped from; Reuters said Interfax reported that Russian output in March was 11 million barrels a day, while S&P Global Commodity Insights had earlier estimated Russian output in March at slightly more than 10 million barrels per day. 

If the 7.5% loss was off 10 million barrels a day, that puts the drop at 750,000 barrels per day, far less than the 3 million that the International Energy Agency has estimated is the probable loss of Russian output going forward, due to formal and informal sanctions. 

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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.