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Weekly DOE/EIA diesel price decline is biggest since 2008

Plunge of 16.4 cents a gallon brings 5-week total drop to more than 54 cents

Photo: Jim Allen/FreightWaves

The wild oil and diesel market of 2022 continues to deliver comparisons with numbers not seen for a long time.

In the latest weekly average retail diesel price posted Monday by the Department of Energy’s Energy Information Administration, the 16.4-cent decline to $5.268 a gallon marks the biggest one-week drop since the fall of 2008.

It also adds up to a 54.2-cent decline over the past five weeks. In four of those weeks, the decline has been double-digit. The 54.2-cents drop is coming off the all-time high in the price, which checked in at $5.81 a gallon on June 20.

The 16.4-cent fall follows a 13.6-cent decline a week earlier. That drop was the largest posted by the EIA since a 13.8-cent decline in 2014.

But the latest drop is the biggest since a string of sharp declines in October 2008. That was when all financial markets were tumbling hard in the wake of the start of the financial crisis, which had kicked into high gear a month earlier with the collapse of Lehman Brothers.

This week’s drop in the price used as the basis for most fuel surcharges comes after a five-day period last week in which the price of ultra low sulfur diesel on the CME commodity exchange fell by almost 20 cents a gallon between July 18 (a settlement of $3.655 a gallon) and Friday, when a more than 13-cent decline on the day led ULSD to close the week at $3.456 a gallon.

That benchmark price climbed Monday, rising 6.1 cents a gallon to settle at  $3.5166. Even with the rise Monday, the ULSD price on CME is now down almost $1.62 a gallon from its April 28 settlement of $5.1354 a gallon, the all-time high. 

Even with the latest decline in retail prices that is reflected in the DOE/EIA price, numbers at the pump are still well above traditional spreads relative to wholesale prices, which track movements in the CME ULSD price relatively closely.

The FUELS.USA number in FreightWaves’ SONAR — the difference between the national average retail price and the national average wholesale price — came in Monday at $1.758 a gallon. While that is down from the July 7 high of $1.822 a gallon, it is well above historic norms, which tend to be in the $1 to $1.10 range. It signals that further declines in the price of futures and wholesale diesel on the one hand and retail numbers on the other should see pump prices declining at a rate faster than futures/wholesale. Or if prices are headed up on futures markets, retail gains should be slower.

Recent declines in oil prices may start to run into a headwind in the form of the falling value of the U.S. dollar. The DXY index, considered the primary barometer of overall strength in the greenback, is down near 106.50 after peaking just under 109 in mid-July, the highest level in the past five years. The price relationship between the dollar and oil (and other commodities) is inverse, as a strong dollar works to push down the price of dollar-based commodities like oil. The relationship is not 1:1, but the strength of the dollar has clearly been a factor in recent declines.

Oil markets received some bearish news Monday out of Libya, where production was said to have recovered to roughly 1 million barrels a day. Production there had dropped to at least 500,000 barrels a day and possibly less in recent weeks due to political battles. But changes in the composition of the state oil company, according to Bloomberg, have allowed the industry to recover some of its lost output.

Partly offsetting that news is the latest report from the U.S. Strategic Petroleum Reserve, where sales have declined to about 820,000 barrels a day from close to 1 million barrels a day a few weeks ago, according to various media reports.

Sales out of the SPR have put reserves there at about 475 million barrels. At the end of 2019, reserves were about 635 million barrels. With hurricane season officially started but with the heart of it looming, it has raised market consideration of whether the DOE might need to fight a “two-front war”: sales of SPR oil to backfill lost Russian supply and keep prices in check, and a need to release oil to fill in lost supply from possible hurricanes.

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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.