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Key diesel prices down to levels not seen since March

Both DOE/EIA and CME prices Monday were back to levels from 6 months ago

Photo: Jim Allen/FreightWaves

On Monday, two key diesel prices fell to levels last posted in March.

The weekly average retail diesel price from the Department of Energy/Energy Information Administration fell for the 13th time in 14 weeks, posted at $4.889 a gallon, a decline of 7.5 cents a gallon. 

It’s the lowest posting for the benchmark price used for most fuel surcharges since a price of $4.849 a gallon on March 7. That was a 40.1-cent increase that week, following an increase of almost 75 cents the week before as the Russian invasion of Ukraine was swinging into full force. That shows that the retail price in the U.S. still has a long way to fall before it gets to prewar levels.

The latest price puts the DOE/EIA diesel price on track to soon be down a full dollar per gallon from its all-time high. That was $5.81 on June 20, which was the price posted before the stretch of 13 declines in 14 weeks. 

The second price that hit March levels Monday was the ultra low sulfur diesel price on the CME commodity exchange. It declined 10.8 cents to settle at $3.1291 a gallon, for a two-day decline of 28.24 cents. The settlement Monday was the lowest on CME since a March 16 settlement of $3.1001 a gallon. Prices soared the next day in reaction to the already ongoing Russia-Ukraine war.

Prices continue to be pressured by several factors, including the still-soaring dollar. There is an inverse relationship between the dollar and commodity prices based in dollars, which in international markets is most of them. 

The value of the DXY dollar index on the ICE commodity exchange has risen from about 104 to 114 since the end of June, an enormous move in a short period of time. Just in the past two trading days, the dollar has risen from a Friday low of just over 111 to levels Monday that consistently traded above 114. That sort of move creates major deflationary pressures.

However, markets will be watching Hurricane Ian and its impact on oil markets. Both BP and Chevron announced production shut-ins Monday at some of their Gulf of Mexico platforms in anticipation of Ian. 

But the most widely expected track of the storm takes it along the west coast of Florida, making landfall somewhere between Naples and the Tampa Bay area. Offshore production in the Gulf of Mexico is farther west than where Ian is expected to make landfall. There are no refineries in Florida. 

The only scenario that might result in disruptions to oil markets is if Ian took a more westward track and instead of making landfall in the Tampa area or on the Florida Panhandle, it swung into the New Orleans area, disrupting refinery activity there as well as leading to a more sweeping shut-in of Gulf of Mexico production. But only one possible track shows Ian making such a move.

Another bearish factor working to push down diesel prices is a reduction in trader interest in diesel. John Kemp, the chief energy correspondent for Reuters, reported Monday that data from the Commodity Futures Trading Commission show traders have become more bearish on distillate. A ratio of bullish to bearish positions by traders fell to 2.28 to 1 on the most recent data, down from almost 5 to 1 in mid-June, according to Kemp.

Even with that decline, there has not been significant weakness in the spread between ULSD and Brent on the CME in recent days. Comparing front month prices, the Brent-to-ULSD gap Monday was 47.36 cents a gallon. That is essentially flat from a week ago. And while it is lower than the spread of almost 60 cents just two to three weeks ago, and a lot less than when it was $1.50 to $1.60 during parts of June, it remains elevated from historic levels. The spread averaged about 37 cents for all of 2022. 

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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.