Benchmark diesel price reverses, rises for first time in 7 weeks

The benchmark Department of Energy/Energy Information Administration average retail diesel price moved up Tuesday after seven weeks of declines. 

Retail prices finally reacted to higher futures and wholesale prices that have marked the diesel market since before Christmas. But just as that pump price has started to rise, diesel futures Tuesday posted one of the biggest declines since July, depending on how it is measured.  

The weekly DOE/EIA price used as the basis for most fuel surcharges rose 4.6 cents per gallon to $4.583. The seven-week slide had taken down the benchmark from $5.333 per gallon on Nov. 7 to last week’s price of $4.537 before the recent turnaround. 

The upward tick follows an increase in the ultra low sulfur diesel (ULSD) settlement price on the CME commodity exchange of more than 57 cents per gallon between Dec. 7 and the final trading day of the year Friday, when the CME ULSD settled at $3.3622. That upward move followed a decline that had seen the futures price fall to $2.787 per gallon on Dec. 7, pushed lower by several factors but none more significant than the rise in U.S. inventories from the low levels of the fall that threatened a severe diesel squeeze if they hadn’t reversed.  

But just as the DOE/EIA benchmark used for most fuel surcharges rose Tuesday, the futures price of ULSD kicked off 2023 with a significant downturn, a drop far more than declines in benchmark crude prices.

ULSD on Tuesday declined 27.57 cents a gallon, a drop of 8.2%. In outright terms, the 27.57-cent decline represents the largest since an almost 57-cent decline on Nov. 1. But much of that Nov. 1 drop can be attributed to the day-earlier expiration of a squeezed November contract in the front month to be replaced by a much lower December contract. To find a decline unrelated to a rolling of the front month would require going back to a more than 33-cent decline on July 5.

Broader oil markets were hit Tuesday with a higher dollar, as there is an inverse relationship between oil prices and the strength of the greenback. A stronger dollar will work to push down prices. But a generally bearish forecast on the state of the world economy in 2023 also led to benchmark Brent crude dropping more than 4.4% and U.S. benchmark WTI declining 4.15%. 

However, the drop of more than 8% in diesel far outstripped that. Diesel is a distillate like heating oil, and at this time of year can be subject to the vagaries of winter weather.

Forecasts of warmer-than-normal weather in both the U.S. and Europe in coming weeks sent both diesel and natural gas sliding. The Henry Hub natural gas price, the U.S. benchmark, settled below $4 per thousand cubic feet (Mcf) Tuesday, the first time it broke below that number since Jan. 21, 2022. It fell 48.7 cents per Mcf, a drop of 10.88% and a decline of a magnitude that provides a strong headwind for diesel markets to overcome.

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Editor: John Kingston