With the latest increase in the Department of Energy/Energy Information Administration average weekly retail diesel price, the benchmark used for fuel surcharges has tacked on more than 30 cents per gallon in just four weeks.
The increase of 4.2 cents per gallon, bringing the price to $3.713 a gallon, would normally be considered a relatively large upward move for one week. But in the volatile market of the past year, it’s just another large but common increase and is actually the smallest of the past four weeks. Per-gallon increases in the past four weeks have been 7.1, 10.9 and 8.5 cents, respectively. Combined with the latest increase, it has put the DOE/EIA price up 30.7 cents a gallon, rising from $3.406 a gallon on Sept. 27.
This week’s price is the highest since Oct. 6, 2008, when oil prices in general were in a near-freefall from their all-time highs in early July. The start of the great recession and the collapse of Lehman Brothers set oil prices on a steep decline soon after.
A story from Bloomberg over the weekend summed up the growing analyst consensus that oil prices are “higher for longer.” It quoted well-known analyst Jeffrey Currie of Goldman Sachs expressing that view. “My advice to clients is that you want to stay long oil until you know where that equilibrium price is” that brings new supplies online, Currie said. “We know it’s above these levels because we haven’t had a big uptick in capex and investment.”
The benchmark ultra low sulfur diesel price on the CME commodity exchange actually fell in the past week. That price settled Monday at $2.5647, a gain of 2.58 cents a gallon on the day. But it’s less than the settlement a week ago Monday of $2.5737 a gallon, and it is down 2.76 cents per gallon from last week’s high settlement of the week on Thursday. The market settled that day at $2.5923.
One other piece of positive news for diesel buyers: Diesel weakened slightly relative to crude. In recent weeks, diesel prices have been climbing at a rate higher than the two key crude benchmarks: West Texas Intermediate, which is the U.S. benchmark, and Brent, the global crude benchmark. The spread of ULSD against Brent got as high as 56.14 cents a gallon on Oct. 14.
But the spread Monday was down to 51.73 cents per gallon. On Friday it was even lower, declining to 50.25 cents a gallon.
Another piece of good news for buyers: Wholesale prices have started to come down. The national average wholesale price for ULSD in the ULSDR.USA data feed in SONAR is down roughly 4 cents per gallon in the past week.
But another number that should concern buyers is the 12-month spread between November 2021 deliveries of ULSD and those in 2022. Its gap continues to widen, a sign of increasingly tight inventories.
On Monday, what is known as the backwardation between the two contracts settled at more than 20 cents a gallon. The wider the spread, the more likely it is that tight inventories are pushing up demand for the product with the quickest delivery time frame. That widens the backwardation. A month ago, that spread was roughly 11.5 cents a gallon.