The prime price for diesel has fallen for the 19th time in 21 weeks. (Photo: Jim Allen/FreightWaves)
Oil markets trended higher last week and received another, albeit muted, boost on Monday from weekend events in Russia, but the benchmark retail diesel price fell for the 19th time in 21 weeks.
The average US retail price for diesel, which is used for most fuel surcharges, fell 1.4 cents a gallon to $3,801. This meant last week’s 2.1 cents a gallon gain, which ended a string of declines for eight straight weeks, proved short-lived.
Monday’s latest drop came even as oil futures markets rose. From a recent low of $2.3091 a gallon on June 12, the price of ultra-low sulfur diesel (ULSD) on the CME commodities exchange rose as high as $2.5642 on Wednesday before recovering at the end of the week slipped to $2.4071.
Prices were higher on Monday, partly due to the weekend’s short-circuit coup in Russia, or whatever it’s called. However, the ULSD’s overall gain of 3.17 cents a gallon to $2.4388, up 1.32%, might be considered minor given the prospect of a government change or at least a shakeup at the world’s third largest oil producer too be seen as hugely bullish on prices at other times.
But a Reuters report, citing retailers and analytics firm Refinitiv Eikon, said there were no reports of supply disruptions.
ULSD on the CME was trading nearly 3 cents a gallon up on the settlement earlier in the day, topping out at $2.4651. Diesel significantly outperformed the rise in Brent, the global crude oil benchmark. That was up 45 cents a barrel to $74.18, but that represented a gain of nearly 0.6%.
The Brent ULSD spread has ranged from around 62 cents a gallon to as high as 72 cents a gallon for the past few days. The strength shown on Monday sent the spread widening to about 67.2 cents a gallon from about 64.9 cents at Friday’s close.
It is not surprising that diesel could be more optimistic than crude oil due to the Russian news. Russia is a major supplier of diesel to the world market and has recently been processing crude oil into products such as diesel and gasoline at extremely high speeds, according to a Bloomberg report.
According to the Bloomberg report, Russian refiners have boosted their crude throughput to a 10-week high as the country’s maintenance season comes to an end. According to the report, Russian refiners processed 5.6 million barrels per day of crude oil in the week ended June 21, up about 115,000 barrels per day from just a week earlier. The last week the country processed as much as last week was early April.
But the gains might be short-lived. The Bloomberg report also said that Russia is considering slashing the subsidies it pays to its refining sector as spending refocuses on the war in Ukraine. With those subsidies gone, the Bloomberg report said some refiners are now raising their operating rates as high as they can in anticipation of reduced subsidies as early as September.
One potential market factor that could support the price of diesel: a sudden surge in natural gas prices in the US. The Henry Hub contract on the CME has risen from a June 1 price of approximately $2.15 per million BTUs (mmBtus) to a comparison price Monday of $2.791 per mmBtus.
Diesel and natural gas can replace each other in some applications, a switch that is believed to have happened in large volumes over the past year, when US natural gas at times approached $10/mmBtus.
However, according to various market reports, the recent rise in natural gas prices has less to do with fundamentals and more to do with covering short sales as trading in the July contract on the CME expires this week. Large trader short positions – essentially bets that prices will continue to fall – are finding that they need to raise prices to cover their short positions in the July contract.
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