Even as the benchmark Department of Energy/Energy Information Administration weekly diesel price fell 4.2 cents a gallon to $5.571 a gallon Monday, there was a potential short-term disruption that might have poked its head up earlier in the day.
What was most notable in the market Monday was what happened with futures prices on the CME commodity exchange, and it raised the question: Could a squeeze be developing in the final days of the June ultra low sulfur diesel contract on the CME.
Recall that at the end of April, the May ULSD contract posted gigantic gains even as months beyond May moved up by far smaller numbers. It was a classic short squeeze, with traders going into the final days of trading on the May contract with a short position — and needing to buy diesel to cover it — finding themselves paying ever higher prices to cover that short.
The June contract’s final day of trading is Friday.
In the four days leading up to contract expiration April 29, ULSD gained anywhere from 15.2 to 46.11 cents a gallon.
What happened Monday was a fraction of that. But after several trading days of ULSD almost always declining more or rising less than other petroleum contracts on CME, that changed Monday.
ULSD rose 2.97 cents a gallon, an increase of 0.79%. Meanwhile, West Texas Intermediate crude was down 2.62%, while recently red-hot RBOB gasoline, an unfinished product used to make finished gasoline, declined 1.02%.
Brent, the world’s crude benchmark, was up by a percentage almost identical to that of ULSD.
The ULSD contract was stronger on CME even as other indicators in the diesel market pointed somewhat lower.
Besides the decline in the DOE/EIA national average diesel price, the agency’s East Coast diesel price also fell. It did not fall as much as the national average, declining 3.9 cents to $5.905 a gallon. But a week earlier, that East Coast price was up 3.7 cents even as the national average declined 1 cent. This week, they moved in the same direction.
The bigger decline for the national average did blow the spread between national and East Coast out to 33.4 cents a gallon. That is the widest in the history of the data series. The spread averaged negative 1.5 cents a gallon — with the national average more than the East Coast number — for all of 2021.
The physical market spread between the East Coast and the Gulf Coast, a key measure of how tight the East Coast diesel market is holding, narrowed to 27 cents, according to General Index, a benchmark administrator. That spread a week ago stood at 76 cents but declined to roughly 35 cents a day later. The Monday price was still above the 22.25 cents recorded last Wednesday, indicating a market that remains volatile.
Diesel markets will again be closely watching Wednesday’s statistical report from the EIA, looking to see if last week’s rebound in East Coast ULSD stocks can be repeated after dropping to some of the lowest levels on record.
Total distillate stocks, including diesel, rose last week. And on Monday, S&P Global Commodities, which includes the legacy Platts business, projected that distillate stocks reported Wednesday will rise 600,000 barrels to 105.9 million barrels. It would be a minuscule increase, just .005%, but it would mark another step in the reversal of a decline in distillate stocks that has gone on almost continuously this year.
In the past 52 weekly reports from the EIA, total distillate inventories rose only 18 times. Last week’s total distillate inventories of 105.27 million barrels were down 20% from year-ago levels.