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Russia-Ukraine developments: Commodity diesel prices take a breather

Neon coming out of Ukraine might get tight, further restricting chip market

Photo: Jim Allen/FreightWaves

Consumers of diesel fuel got a rare respite, at least in the commodity markets, when the price of ultra low sulfur diesel (ULSD) rose only slightly Thursday.

After three days in which the price of ULSD on the CME commodity exchange rose more than 64 cents a gallon, ULSD Thursday rose just 0.87 cents to $3.5034 a gallon. It had been as high as more than $3.84 per gallon earlier in the day.

The general consensus in the market is that prices pulled back because of growing signs that negotiators in Vienna are nearing a deal that would ease sanctions on Iran over nuclear issues. The country’s oil minister recently was quoted as saying that Iranian oil exports could reach their maximum capacity just two months after a nuclear deal is reached. If so, that is projected to bring output up to 3.8 million barrels per day from 2.4 million barrels per day now. 

However, it wasn’t entirely clear what the minister meant when he said Iran could be at its export capacity. The assumption is Iran cannot produce at those higher levels right away but can export out of floating storage. What precisely the Iranians believe is their export capacity is not known.

What was also notable in Thursday’s market is the relative strength of diesel compared to crude. Russian oil exports are heavily weighted toward diesel, and diesel’s strength relative to crude has been stunning.

While diesel on CME rose Thursday, U.S. crude benchmark West Texas Intermediate and international crude benchmark Brent both fell. 

That resulted in the spread between crude and diesel blowing out. Measured in cents per gallon, ULSD was 87.34 cents a gallon more than Brent Thursday. A week ago, it was 53.8 cents. For all of 2021, it averaged just under 38 cents. 

The self-sanctioning of the market against Russian crude continued Thursday. Reports said Urals, the country’s benchmark crude, could not find buyers after being offered at Brent minus $21. A normal Urals spread would be in the minus $1 to $2 level. 

A more stunning spread move has occurred in the FUELS.USA data stream in FreightWaves SONAR. That stream measures the national average retail diesel price compared to the national average wholesale diesel price.

It can be volatile but tends to move around the $1.05-$1.10 per gallon mark. But Thursday, as wholesale markets reacted quickly to higher commodity prices, but with retail unable to do so because of the generally slower speed at which it works, the spread in FUELS.USA plummeted to just under 50 cents. On Feb. 18, it was roughly $1.06. It is at the tightest level in the four-year history of the series. — John Kingston

Supply chain squeeze: Now neon is a concern

Neon gas, the main element used in etching microchips, could become a casualty of the war in Ukraine. Half of the neon used for this purpose comes from the besieged country, and if the war drags on, the shortage of semiconductors besetting the automotive and commercial vehicle industries as well as electronics and many others could worsen.

Meanwhile, when it comes to the Russian impact on the commercial vehicle industry in western nations, Kenny Vieth, ACT Research president and senior analyst, said it is minimal.

“In the global scheme of things, Russia doesn’t mean much to non-Russian companies,” accounting for just 2.6% of medium- and heavy-duty retail truck sales over the past three years. Western brands were only about a quarter of that, he said, with Volvo and Traton brands accounting for most of the sales. — Alan Adler

3PLs: More embargo Russia and Belarus

European 3PL DSV has decided to temporarily suspend  land, air and ocean shipments to and from Russia and Belarus. The company is not taking new bookings to these countries with the exception of food supplies, medical and humanitarian supplies. Kuehne + Nagel, another major logistics provider, said Wednesday it has suspended all import shipments to Russia, with exceptions for medical and humanitarian goods. — Eric Kulisch

In other FreightWaves coverage of the Russia-Ukraine war:

Tanker shares jumps as war rages; other shipping shares mixed

Open letter to supply chain leaders: Ukraine needs humanitarian relief

No surprise: Data shows major e-commerce slowdown in Russia-Ukraine

Everest Transportation keeps calm amid Ukranian chaos


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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.