Weekly decline in DOE/EIA diesel price largest since 2014

It’s been more than seven years since the benchmark Department of Energy/Energy Information Administration average weekly retail diesel price fell as much as it did last week.

The decline of 13.6 cents to $5.432 was the first of that magnitude since Dec. 22, 2014. Oil markets then were in freefall as oil supplies were starting to finally buckle under the weight of increasing U.S. production.

More significantly, the drop posted Monday was the fourth in a row and it has taken the price, used as the basis for most fuel surcharges, down 37.8 cents per gallon from its high-water mark of $5.81 per gallon recorded June 20. That is the highest number in the history of the DOE/EIA series, which goes back to 1994.

The large decline is playing a catch-up game, as the futures price of ultra low sulfur diesel on the CME commodity exchange has been relatively stable of late. On July 7, ULSD settled at $3.6739 per gallon. That was followed a few days later by a big move upward — and then immediately followed by a large drop. The end result: ULSD Monday settled at $6.5555 per gallon, for a decline of less than 2 cents per gallon over the last seven trading days, easily the least volatile period of price movement in the last two months.

From one perspective, however, Monday’s trade could be viewed as volatile. Not because the price swung up and down over the course of the day, but because the settlement of $3.655 per gallon was down 4.35 cents per gallon, or 1.18%. That occurred despite an increase Monday in crude and gasoline, with world crude benchmark Brent and U.S. benchmark West Texas Intermediate both increasing more than $5 per barrel.

Overall, the futures price of ULSD peaked at $4.5719 per gallon on June 16.

There was no obvious news that would have led to a ULSD decline in the face of a big move upward for crude and gasoline. The one notable news item Monday that would have impacted diesel was a report out of the International Energy Agency, which said questions about Russian supplies of natural gas this winter could be a “historic test” for Europe. And when natural gas is in tight supply or unavailable, it is diesel that the hard-pressed buyers turn to instead.

But distillate supplies have continued to climb. U.S. inventories of ULSD in the week ended July 8, the most recent available date, stood at 103.8 million. In early May, they were 94.6 million barrels.

However, even after that enormous growth in stocks, the most recent level of stocks are still well below the five-year average for the second week of July. Excluding 2020, when inventories were swelled by the pandemic, the five-year average for ULSD stocks for July’s second week is 125.8 million barrels, so current levels are still well below that.

The decline in retail prices reflected in the DOE/EIA number, combined with the relatively calm movements in the futures and related wholesale markets, means that the sky-high spread between retail diesel prices and wholesale prices has narrowed considerably. It’s reflected in the FUELS.USA data series in SONAR. On July 7, it peaked at $1.822 per gallon. On Monday, it had sunk to $1.587 per gallon. But it has tended to normalize near $1 to $1.05 per gallon, so further retail declines in the face of a stable futures market are possible.