For 6th week in a row, DOE/EIA benchmark diesel price drops

Retail diesel prices have continued their downward march, with the benchmark used for most fuel surcharges dropping for the sixth week in a row.

The Department of Energy/Energy Information Administration price declined 3.5 cents a gallon, to $4.247. It was the sixth consecutive week the price had declined, falling 21.2 cents a gallon during that time. Longer term, the price has been down 16 of the past 20 weeks, coming off a price of $5.341 a gallon on Oct. 24. That is a $1.094-a-gallon decline during that time. 

In the futures market, since a settlement on Oct. 24 of $3.9201 per gallon, the price of ultra low sulfur diesel on the CME commodity exchange has declined about $1.16 a gallon. Retail prices as measured by the DOE/EIA are reflecting a retail market that has almost matched that decline, trailing only by about 7 cents per gallon.

Monday’s DOE/EIA price came on a day when markets were jolted up and down by wide swings in futures markets as the oil complex–defined loosely as the futures contracts for crude, ULSD and RBOB gasoline–did not appear to know how to react to the failure of Silicon Valley Bank and Signature Bank, and the federal government’s steps to bolster them. 

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ULSD prices on CME swung in a range of about 16 cents a gallon between their low and high of the day, which translates to about $6.82 a barrel. Crude, by contrast, swung in a range of a bit more than $5 between low and high. Given that it is crude oil that tends to have the most volatile reaction to economic factors that are only tangentially tied to petroleum, the fact that ULSD traded in a wider swing is notable and could be a signal of bigger moves ahead. 

But even after all that movement, ULSD on Monday settled down 1.14 cents a gallon at $2.7615.

The spread between diesel and crude had been shrinking, but trading Friday and Monday changed that direction. That spread, translated to cents per gallon, settled near 72.6 cents per gallon Thursday, the lowest it had been in almost a year. But the spread had moved back to more than 84 cents a gallon Monday.

Oil markets have been lacking any significant market-moving news for several weeks. The potential crisis in the banking industry could be viewed either as a bullish factor for oil — tighter credit lines as well as higher interest rates, making building and holding inventories more expensive — or bearish in that any development that threatens economic stability holds out the prospect of lower demand.

In a story by Reuters on Monday’s market, analyst Phil Flynn noted that if the banking crisis leads the Federal Reserve to delay its expected next round of interest rate increases, that could be bearish for the dollar. And given that oil and the dollar tend to move in opposite directions, Flynn noted that the failure of the oil complex to move higher Monday on the prospect of a weaker dollar was puzzling. 

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