EIA: $5 bill, on average, can get you a gallon of diesel fuel

For the first time since March, the benchmark weekly diesel price has dropped below a $5 bill.

The Energy Information Administration of the Department of Energy posted a price of $4.993 per gallon Monday, a decline of 14.5 cents. Every weekly posting since March 7 had been above $5; the March 7 price was $4.849 per gallon, and it then tacked on more than 40 cents March 14 to take it above the $5 level. 

With the 14.5 cents decline, the benchmark price used for most fuel surcharges has now declined seven consecutive weeks and dropped 81.7 cents per gallon. 

Monday’s DOE/EIA price comes on the same day the ultra low sulfur diesel contract on the CME commodity exchange declined 3.68 cents per gallon to settle at $3.1791. That brought the six-day decline, from Aug. 1 through Monday, to 44.56 cents.

The drop Monday came even as West Texas Intermediate crude rose almost 2% and RBOB gasoline — an unfinished gasoline product that serves as the trading instrument for finished gasoline — increased 0.41%.

Recent weakness in the ULSD market relative to other petroleum contracts has pushed down the spread between global benchmark crude Brent and ULSD. On Monday, that spread stood at 87.79 cents per gallon at the day’s settlement. That represents the lowest level since April 8 and is down roughly 18 cents just in the last week. Less than a month ago, the spread was $1.20.

The decline in diesel relative to crude is one way diesel markets have been acting in an unusual manner given the data that shows inventories, at least as measured in the U.S., are tight.

In the most recent weekly EIA report released Wednesday, U.S. stocks of ultra low sulfur diesel were at just under 100 million barrels. If 2020 data is excluded due to the pandemic, the five-year rolling average for the final report of July is just over 125 million barrels, putting last week’s inventories numbers more than 10% less than that average.

Yet not only has diesel at times been dropping when crude and gasoline are rising, but the calendar spread has been tightening. The spread along the calendar – for example, September barrels compared to October barrels, or more importantly, September 2022 barrels compared to September 2023 barrels — is a function of both inventories and interest rates, with inventories considered to be the more important factor.

The 12-month spread for the CME’s ULSD contract has been plummeting, a trend that would normally be associated with growing inventories rather than the tightening ones evident in the gap between the most recent numbers and the 125 million barrel five-year average.

The 12-month spread Monday settled at 31.19 cents per gallon. A month ago on July 8, it settled at just under 61.5 cents. Two months ago on June 8, it was just under $1.

Weakness in diesel also is not viewed as being a function of declining demand. The recent EIA report listed Product Supplied for distillate — which is mostly diesel and excludes jet fuel, which also is a distillate but is reported separately — as rising for the fourth consecutive week. 

At 3.877 million barrels/day last week, product supplied, a proxy for demand, was about 100,000 b/d over the five-year average (excluding 2020).

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