Diesel surcharge benchmark down 9th week in a row amid oil sell-off

But retail prices still have significant catching up to do with the movement in futures prices, though they don’t necessarily match moves in the ultra low sulfur diesel price on the CME commodity exchange penny for penny, on the way up or the way down. 

ULSD on CME fell between the Friday before Labor Day weekend and last Friday by 13.65 cents a gallon, to a Friday settlement of $2.115 a gallon. The price rebounded Monday by 2.44 cents per gallon to settle at $2.1394.

Brent, the international crude benchmark, fell Friday to a settlement of $71.06 a barrel before its own rebound Monday to $71.84.

Markets gained some level of support by reports late last week that the OPEC+ group, which includes the members of OPEC and several non-OPEC countries led by Russia, would not begin its gradual unwinding of production cuts that have reduced their combined output by about 500,000 barrels a day in the first eight months of the year.

The planned cuts by the group, which date back to May and June of 2023, total 2 million barrels per day. OPEC+ had planned to gradually increase production from that level beginning in October.

According to multiple reports, that start date for increases has now been pushed back until December. 

The delay in the OPEC+ decision to delay reductions in output is not impressing analysts, many of whom still see lower prices ahead.

For example, the team at RBC Capital led by Helima Croft wrote in a note that oil markets were marked by “looming oversupply, a softening macro backdrop and weak refined product markets” that the team said was “firming the ceiling for crude prices.”

Although chatter in the markets has been that some sets of data point to production falling short of demand, the RBC note sees the opposite. 

It said that crude inventory drawdowns are 70% less in the third quarter compared to the third quarter of 2023. “This itself bodes poorly for crude demand before also considering the exacerbating effects of a slowing economic backdrop,” RBC wrote.

Meanwhile, a report from Reuters last week quoting the latest outlook from Citi said if OPEC+ does not reduce production further, “the average price of oil could drop to $60 per barrel in 2025 due to reduced demand and increased supply from non-OPEC countries.”

The more bullish case, according to Reuters, holds sway at UBS, which expects Brent to rise above $80 a barrel over the coming months, arguing that the there is a shortfall of supply and strong demand in other parts of the world that is offsetting weakness in China.

John Kemp, the longtime Reuters energy correspondent who is now on his own, said some of the recent price decline could be attributed to financial firms taking a strongly bearish approach to oil.

Citing the weekly data from the Commodity Futures Trading Commission, Kemp wrote that investors “held a record bearish position in petroleum last week, anticipating consumption growth would stay subdued owing to the weakness of manufacturing across the major industrial economies.”

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