In quieter diesel market, benchmark price moves down just over 5 cents

After a big upward move of 21 cents a gallon two weeks ago and a price that didn’t move last week, the weekly Department of Energy/Energy Information Administration average weekly retail diesel price moved down in its latest posting. 

The size of the 5.1-cents-a-gallon drop was somewhat surprising, given other indicators that suggested the decline might be more moderate for the price that serves as the basis for most fuel surcharges.

The small movement in recent weeks, except for the 21-cent barn burner, contrasts sharply with the volatility of the weeks prior to that.

Since an upward 2 cents-per-gallon move on Dec. 25, the changes, up or down besides the 21-cent shift, have ranged from negative 4.8 to positive 3.5 cents a gallon. The 5.1-cent move this week was larger than those other recent changes.

By contrast, during a long run of mostly negative price moves just prior to that, changes were regularly above 5 cents a gallon and a few times reached 9 or 10 cents.

Oil prices in general have been experiencing a run of relative stability. Since the world crude benchmark Brent broke above $82 a barrel on Feb. 9, the daily settlement has ranged from a low of $81.50 to $83.47 a barrel. It’s been a tight trading range.

The trading range in ultra low sulfur diesel (ULSD) on the CME commodity exchange has not been as tight but has been trending more downward. After a brief two-day foray above $2.90 a gallon on Feb. 9 and 12, the downward trend pushed the settlement to $2.6897 a gallon Friday before it popped up 7.3 cents per gallon Monday. 

Although the futures market has been mostly lower in the past week, there has been strength in physical markets in the U.S. In the various regional markets, diesel is traded as a differential to the CME ULSD price, for barrels delivered in a barge or by pipeline.

Many of those markets just a week ago had been trending lower but in some cases have reversed. Diesel on the Buckeye pipeline, which runs from the Midwest into Ohio and Pennsylvania, was minus 8 cents under the CME ULSD price Monday, according to DTN, after being minus 20 cents on Feb. 20.

The Chicago market saw similar strengthening, to minus 14 cents a gallon Monday from minus 25 cents a gallon Feb. 16. The Gulf Coast movement was from negative 0.825 cents a gallon on Feb. 21 to minus 4.75 cents a gallon. 

The Los Angeles market actually weakened, moving from plus 10 cents a gallon on Feb. 13 to plus 2 cents a gallon Monday.

The oil market isn’t getting much news either way to make a significant move. For example, one of the “big” stories Monday — though it wasn’t that big — was that Goldman Sachs increased its forecast for Brent this summer by all of $2 a barrel to $87 a barrel. According to an article from Reuters, Goldman cited its belief that OPEC+ will continue its existing production cuts, which Reuters said would keep the market in a “moderate” deficit.

Its forecast for 2025 is an average of $80 a barrel.

The tension in the Middle East becoming a bullish factor was the underlying theme of an article published by Bloomberg over the weekend that suggested the diversion of oil shipments away from the Red Sea/Suez Canal combination is still out there as a possible upward push for oil prices.

That the diversions could be bullish was always a possibility, though it has not had much impact so far. The concern that it would raise prices comes not from a loss of any supply. Rather, it was always that the longer transit times would take oil off the market for a longer period of time than normal, which works to tighten supply.

In the article, Bloomberg highlighted that the lengthier transit times ultimately mean more demand for tankers and that there is little new supply coming this year.

According to Bloomberg, “just two new supertankers are due to join the fleet in 2024 — the fewest additions in almost four decades and about 90% below the yearly average this millennium.”

“But after owners increasingly started to shun the southern Red Sea, the lack of new capacity is starting to bite: rates have seen spikes, and voyage durations are going up.”

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