Even as the diesel futures market shows signs of strength, the benchmark US diesel price fell for the eighth consecutive week on Monday.
The weekly average retail price, released by the Department of Energy’s Energy Information Administration and used as the basis for most fuel surcharges, fell 8.2 cents a gallon to $4.911 a gallon on Monday. That’s the lowest price since March.
The price brings the sum of the eight-week decline to nearly 90 cents, 89.9 cents to be exact.
The sharp declines continue almost regardless of what happens in the rising diesel futures and wholesale markets as retail prices move to levels closer to historical levels compared to wholesale prices.
As the FUELS.USA data series in SONAR shows, the average national retail price for diesel has traditionally been $1 to $1.10 per gallon higher than the average national wholesale price for diesel. But there is tremendous volatility in this number.
Most recently, as diesel and wholesale prices began to decline, retail prices proved sticky and the FUELS.USA spread widened to over $1.70 a gallon by the 9th August. But by Sunday that spread had narrowed to $1,364 a gallon as retailers began slashing prices, a situation that inevitably occurs when a retail store buys a cheaper batch of fuel and uses that lower cost to gain a competitive edge in the almost to provide direct combat, which is the characteristic of fuel sale street corner.
The drop in DOE/EIA price came on a day when oil futures markets were overall lower.
U.S. benchmark West Texas Intermediate crude on the CME commodities exchange fell $2.73 to $89.41 a barrel, down 2.96%. Global benchmark Brent crude slipped $3.05, down 3.11%. Concerns about slow Chinese growth, despite stronger stock markets, were cited as the main reason for the oil decline.
With ultra-low sulfur diesel down 7.75 cents a gallon to $3.4403, down 2.2%, it was another day for diesel prices to outperform crude prices, either on the way down or way up.
The bottom line is that the fundamental spread between Brent month one and month one ULSD futures has reversed recent gains and is widening. That spread was just under $1.75 a gallon on June 22nd. This is well above the normal spread; a year earlier it was about 37 cents.
The spread moved off that June 22nd high and fell to just under 88 cents a week ago. But given diesel’s recent gains and crude’s failure, the spread has ranged from $1.17 to $1.18 a gallon for the past two trading days.
The futures price for diesel rose last week with four days of sharp increases in the futures price. Prices rose 33.87 cents a gallon between last Tuesday and Friday.
Last week’s gains were also partially helped by a fresh rise in the value of the dollar. The DXY index on ICE, the most-watched dollar indicator, rose to about 106.4 from about 104.6 on Wednesday, a sharp move in just four trading days. Commodities valued in dollars tend to move inversely to the value of the dollar.
The recent move higher in diesel prices, whether on a direct basis or a widening of the spread versus crude oil, has a long list of reasons: persistently low inventories, the approach of winter and harvest time in the midst of tight inventories and the potential impact – belated but arriving now – the IMO 2020 marine fuel standard, which is expected to shock diesel markets in 2020 when it comes into effect, but with delayed impact due to the arrival of the pandemic in the first quarter of this year.
Another factor spurring on diesel is the continued rise in natural gas prices. Diesel and other distillates can often be a substitute for natural gas in certain applications, including power generation.
The global strength of the natural gas market is beginning to bounce back in the US. According to S&P Global Commodities Insight, which houses the former Platts division, spot natural gas in Southern California showed this Monday at the SoCal delivery point to more than $12 per million Btu and rose $1.61 to $12.455 per million Btu.
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