The weekly Department of Energy/Energy Information Administration price took a small dip this week even as broader market prices are in the midst of a significant slide.
The benchmark price, used as the basis for most fuel surcharges, declined 0.3 cents a gallon, to $3.364. It’s the second decline in the past three weeks, coming after a 12-week run of increases.
But the small move in the retail price of diesel reflected in the DOE/EIA price is in sharp contrast to what is happening in commodity markets. There, all petroleum benchmarks are falling rapidly as what had been bullish forecasts for global oil demand just a few weeks ago are starting to take a serious hit from the spread of the delta variant.
Ultra low sulfur diesel on the CME commodity exchange fell 4.33 cents a gallon Monday, a decline of 2.08% from Friday’s settlement, settling at $2.0421 a gallon. The price has now fallen more than 15 cents a gallon in the past six trading days, and was down on five of those six days. It is at the lowest level since July 20.
So far, ULSD is not falling as much as the decline in crude. The spread between global crude benchmark Brent and ULSD dropped Monday to 39.83 cents a gallon. It’s down about 1 cent since Thursday, but had been as low as just over 35 cents on July 19.
That relative strength against crude may be difficult to maintain, which is good news for diesel consumers. Bloomberg reported that one of the factors that brought the market lower on news of the delta variant was data on Chinese demand. One part of that data: Airline seat capacity is down more than 30% in the past week.
That has the potential to particularly impact diesel. Jet fuel, like diesel, is a distillate. A decline in demand for jet fuel inevitably spills into the diesel market, as refiners that are facing a softness in jet fuel demand shift their distillate pool over to diesel in response. That is one of the reasons why when news of COVID-19 first hit markets in January 2020, it was diesel prices that took the first sharp downward moves on the assumption that air travel would be the first victim of a pandemic.
Oil markets are also being impacted by the rise in the U.S. dollar. Dollar moves generally impact oil prices inversely, so a rising dollar pushes down the price of oil, since oil is priced in dollars.
Although retail prices have been slow to react to the general decline in oil prices, that is not the case with wholesale diesel prices. Wholesale price moves are tied closely to movements in the commodity markets. Since Aug. 2, the average price of wholesale ULSD has declined almost 10 cents a gallon, according to the ULSDR.USA data feed in SONAR, FreightWaves’ data dashboard.