For the 14th time in the past 15 weeks, the diesel reference price, which serves as the basis for most fuel surcharges, has fallen.
And what almost seems like a pattern lately, this price released on Monday went in a different direction than the broader market movements of the same day.
The Department of Energy/Energy Information Administration price fell 5.3 cents to $4.836 a gallon. This marks the lowest DOE price since $4.104 a gallon was announced on Feb. 28, just as the market was amid initial reactions to the Russian invasion of Ukraine.
The DOE/EIA price has still not recovered a dollar from its all-time high of $5.81 a gallon recorded on June 20th, just before the run of 14/15 declines. But it’s only 1.4 cents away from turning down an entire dollar.
Oil markets as a whole were broadly higher on Monday as they digested news that the OPEC+ group, which includes OPEC and some non-OPEC exporters, led by Russia, plans to cut quotas by 1 million barrels a year shorten the day when she meets later this week.
It would be the first production cut since production slumped early in the pandemic, when sudden flooding was so severe that the price of West Texas Intermediate crude, the US benchmark, went negative for a day. Since early 2021, OPEC has been scheduled to bring production to market every month, although the inability of several countries has meant actual production increases often fall short of promises.
The meeting in Vienna is the first face-to-face meeting of the group since early 2020.
In an interview with CNBC on Monday, Jeffrey Currie, head of commodity research at Goldman Sachs, said OPEC “has an incentive to do so.” [cut production] as they are the only producer in the world with spare capacity.” OPEC is looking at a market where the global benchmark for Brent crude fell from June levels near $120 a barrel to more recent readings near $85 a barrel ahead of Monday’s recovery USD per barrel has fallen.
“The old order is back and OPEC is probably more powerful than ever,” Currie told CNBC.
The news sent futures prices higher on Sunday night in the US and early Monday morning in Asia. By the close of trade, Brent was up $3.72 a barrel to $88.86, up 4.37%, while ultra-low sulfur diesel was up 4.58% on the CME commodity exchange, up 14, Up 75 cents to $3.3691 a gallon.
Cutting OPEC+ quotas by 1 million barrels per day is unlikely to result in such a large reduction in supply as few countries are producing their allotment anyway.
For example, in the latest S&P Global Commodities Insight OPEC+ production survey, which houses the legacy Platts business, only two out of 10 OPEC countries produced their quota in August, the most recent monthly data is available. In the non-OPEC group, only the relatively small producer from South Sudan met its quota. There are three OPEC countries that do not have a quota for various political reasons: Iran, Libya and Venezuela.
But that doesn’t mean OPEC+ production totals didn’t trend higher in August. The group’s production of 42.84 million barrels per day this month was the highest since the pandemic began.
Any cut in crude supply will come with an already sharp reduction in refining, particularly in Europe. That has helped push the Brent-to-diesel spread up nearly $1.25 a gallon, well above historical norms.
In an article citing consultancy Energy Aspects, Reuters said about 1.5 million barrels per day of refining capacity in Europe will be out of service in October for maintenance. That number was 1.1 million in September and will improve to 600,000 in November. The numbers are said to have been higher than normal.
A drop in US refinery operations due to maintenance is beginning to show in the EIA’s weekly statistics. Refinery utilization for the week ended September 23, the latest available data, was 90.6%, the lowest since early May.
More items from John Kingston
Federal Trade Commission joins dispute with independent contractors
The Goods Movement Alliance enters the California supply chain advocacy scene
IANA Panel: Intermodal chassis squeeze easing, but far from over
Comments are closed.