Diesel prices defy market trends
The benchmark price used for most fuel surcharges has risen for a third consecutive week, despite oil prices plummeting. The Department of Energy/Energy Information Administration average weekly retail diesel price climbed 17.9 cents/gallon to $5.313/g, effective Monday but published Tuesday.
This increase marks the third consecutive week of a rise, with a total increase of 73.5 cents/gallon during that time. The latest DOE/EIA price has risen to a level that is the highest since June 8, when it was $5.21/g.
Given the lag in retail changes, the price would not have been expected to reflect the sharp fall in futures prices that began when trading opened for the week Sunday evening U.S. time. That decline followed lower prices Friday that were seen not as a reversal of the market but more of a breather after several days of sharp increases.
The cessation over the weekend of what had been nightly U.S. attacks on Iran, and other rumblings of negotiations, led to higher futures market prices the first two days of this week. However, for diesel consumers, the more salient development is that once again, the price of that fuel did not match the fall in the price of crude.
For example, on Monday the price of world crude benchmark Brent fell $8.42/barrel, settling at $88.36/b. It had settled above $100 just two days earlier. The decline marked a drop of 8.7%. But also on Monday, the price of ultra low sulfur diesel (ULSD) on the CME commodity exchange declined 6.9 cents/gallon to settle at $4.1116/g. That was a slide of just 1.65%, far less than the plunge in Brent.
This led to what appears to be a historic new number: if Brent was converted to cents per gallon and subtracted from the ULSD price, the number would exceed $2/gallon. There is no recent record of that ever occurring.
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The relationship between Brent and ULSD prices still shows how disconnected the two markets have become. On the last trading day before the U.S. and Israel launched its attacks on Iran, that spread was about 87 cents/gallon. At approximately 11:30 a.m. Tuesday, the spread had widened. Brent was down about 9.7% and ULSD was down about 0.2%.
It means that any diesel consumers watching or reading about the price of oil is probably expecting a bigger decline in the price of the fuel at the pump than what will develop with current trends. The ballooning spread is reacting to a variety of factors, including the general loss of refining capacity in the Middle East from attacks by Iran on facilities in other countries.
Drone attacks by Ukraine on Russian refineries, according to Energy Aspects, earlier this month had pushed Russian refinery operations to their lowest processing level in more than 20 years. As a result, the country has banned diesel exports. Water levels on the Rhine River, after a scorching hot summer in Europe, are falling to a level that will impact deliveries.
The projections that levels will soon fall to their lowest level since 1990 will both inhibit fuel shipments as well as make them more expensive to move on restricted barge usage.
Reporters on the scene note that the situation is being closely watched by US Commerce Department officials, who are concerned about the potential impact on the economy.
The current situation is a result of a combination of factors, including the cessation of attacks on Iran and the rumblings of negotiations. It is also influenced by the general loss of refining capacity in the Middle East and the ban on diesel exports by Russia.
