For 1st time since July, benchmark diesel price heads downward

Just when it looked like there was no end in sight to rising diesel prices, markets have turned downward.

One of the key markers of that decline could be found in the Department of Energy/Energy Information Administration average retail weekly diesel price, the benchmark used for most fuel surcharges. The latest price is $4.586 a gallon, a decline of 4.7 cents.

It’s the first week since July 3 that the price posted a decline. Since then, there have been 11 weeks of increases, including one jump of 22.2 cents a gallon, and one week of no change.

The final numbers for that surge: Since the July 3 price of $3.767 a gallon, the DOE/EIA price surged 86.6 cents a gallon to last week’s $4.633. 

The latest DOE/EIA price came on a day when the futures price of ultra low sulfur diesel declined 4.4 cents a galllon to a settlement of $3.2622. Since a recent high price of $3.4815 a gallon on Sept. 14, the price of ULSD on the CME commodity exchange is down 21.93 cents a gallon. Monday’s settlement was the lowest since Sept. 7.

The decline in price is coming as refinery maintenance around the world is kicking into high gear. That was evident in the most recent EIA weekly statistical report, which showed the national average refinery utilization rate down to 91.9%, the lowest since the end of June. (And a June 30 rate of 91.1% recorded for the last week of June looks like an outlier; it’s in the middle of a string of utilization rates well into the 93%-94% range, and sometimes higher.)

But Monday is Sept. 25 and there is already some looking ahead to maintenance season being in the rearview mirror, as noted by the monthly middle distillates report of Energy Aspects. (Diesel is a middle distillate.)

In its report, Energy Aspects goes through several of the factors still bullish for diesel: a tight market in Russian diesel, driven in part by an announcement of an export ban last week from that country; “hefty maintenance schedules” from Russian refineries; the big maintenance program at two key U.S. East Coast refineries, one in Canada and one in Philadelphia (which helped reduce U.S. East Coast operating rates to 90% in the week ended Sept. 15); and tighter restrictions on Chinese exports.

But Energy Aspects also says “we expect cracks to soften once we get through the bulk of the maintenance.” Refinery runs will “rise sharply month on month from November, but real (bearish) pressure is not expected until (the first quarter of 2024) on the back of capacity startups east of Suez,” an oil trading term for regions that include South Asian countries such as India as well as other parts of Asia.

The Energy Aspects reference to cracks — the spread between crude and diesel — reflects its market analysis on how diesel prices will do relative to crude. By that measure, diesel already is weakening. A straight first-month to first-month comparison between the ULSD and Brent contracts on CME shows a spread that topped out recently at roughly $1.25 a gallon on Sept. 14, most recently dropping to $1.04 a gallon Monday.

As far as the price of crude, the battle goes on between analysts who see the market near a peak and those who see it running out of steam.

The relentless upward move in Brent prices, for now, has hit a rut with a market that has been stuck in a range on either side of $94 a barrel since Sept. 14. Settlements the last three trading days have been $93.30, $93.27 and $93.29 a barrel, respectively, effectively going nowhere.

Monday’s market discussion featured a research report from JP Morgan’s head of energy equity research for Europe/Middle East/Africa, Christyan Malek, who said the recent gains in Brent could be the start of an upward cycle that takes prices to $150 a barrel by 2026.

According to market reports, JP Morgan sees the supply/demand imbalance next year at a shortfall of 1.1 million barrels a day, but that lack of new investment in drilling could drive that gap up to 7.1 million barrels a day by 2030.

It is a sharp turnaround for JP Morgan, which said earlier this year that Brent prices were not likely to reach $100 a barrel, according to reports. But since then, the deep cuts implemented by the OPEC+ group and Saudi Arabia on top of that have tightened markets, leading to a roughly $22-a-barrel increase in the price of Brent since mid-June.

As an aside, a spokesman for the DOE told FreightWaves that it will continue to publish the weekly diesel number — and other statistical information — even if the federal government goes into a shutdown on Oct. 1.

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