The prime price for diesel rose for the second week in a row. (Photo: Jim Allen/FreightWaves)
Just as the Department of Energy/Energy Information Administration’s benchmark diesel price posted a second straight weekly increase, prices in the futures and wholesale markets are trending lower again.
The price, which serves as the basis for most fuel surcharges, rose 1.8 cents a gallon to $4,622 a gallon. This comes after last week’s increase of 8 cents a gallon. But these increases stand out in a long line of price declines; Since its recent high of $5.341 per gallon on Oct. 24, the DOE/EIA price is down 71.9 cents per gallon.
And there could be further declines. Diesel prices on the CME commodities exchange have almost closed since hitting $3.0865 a gallon on Jan. 3, the first trading day of the year. A day later, it fell to $2.9719, the month’s lowest, before climbing back up to $3.5509 a gallon on Jan. 23 and since then to Monday’s $3.1108 a gallon Gallon crashed, nearly 2.5 cents up on day one, with a wild ride in between.
Wholesale diesel prices follow futures market trends, although not necessarily with a 1:1 correlation. The nationwide average wholesale price for diesel, as reflected in the ULSDR.USA dataset in SONAR, fell to $3.392 a gallon on Monday from $3.634 last Tuesday, as wholesale prices matched the big drop in futures -Numbers are followed.
The recent bear market appears to be due to a number of factors. Part of that is a rush in supplies amid the upcoming European Union import ban on Russian products, including diesel, which comes into effect on February 5. Argus Media reported that in the week leading up to January 29, the EU imported about 146,000 tonnes per day of diesel and gasoil, a diesel-like product, while the normal figure is around 88,000 tonnes per day. Argus cited data from Vortexa, a UK-based oil trading data provider.
Separately, S&P Global Commodities Insight reported that the European diesel market may face “significant tightening” once sanctions come into effect, notwithstanding the recent rush to import other sources of diesel.
The ban on Russian diesel imports into the EU is accompanied by a price cap that ship insurers, most of whom are based in the EU, have to comply with. The goal is to bring Russian oil to the market, albeit at reduced prices to limit the revenue flowing to Moscow.
This has largely worked for crude, where Russian seaborne crude exports were 3.6 million barrels a day in the week ended Jan. 27, roughly in line with pre-war levels, according to Bloomberg.
Compared to Brent crude, the international benchmark, diesel has unsurprisingly been as volatile as the overall price, posting a notable decline on Monday. Measured in dollars per barrel, comparing the front month ULSD to Brent normalized to dollars per barrel, the ULSD shows a spread of around $50-$52 per barrel between Jan 11th and 18th. The spread shot up to over $60. Three days later the price fell a barrel and plummeted to around $45 a barrel on Monday as the diesel continued to swing wildly.
US inventories of all distillates, including diesel, stood at 31.8 days in the latest EIA weekly inventory report for the week ended January 20th. Days of coverage – the number of days of consumption that can be covered by inventories alone without additional production or imports – was 31.8 in the last report. This value has remained constant between 31.6 and 32.9 over the past five weeks.
More items from John Kingston
Marine fuels pushed up diesel prices in 2020, but the future impact is unclear
Triumph’s open-loop system hits milestone despite mounting EBITDA loss in payments
5 Insights: Fuller and Strickland provide an overview of the state of the freight market
Comments are closed.