For the second week in a row, and only the first time since July, the benchmark diesel price used for most fuel surcharges rose Monday.
The increase posted by the Department of Energy/Energy Information Administration was just 0.5 cents per gallon, to $3.544 per gallon. It followed an increase of 1.3 cents a week earlier.
Those two increases came after 10 straight weeks of declines.
The last time the price moved up in back-to-back weeks was July 1 and July 8.
The relative stability in the price comes as there’s been a degree of calm in the price of oil, despite Middle East fighting that is intensifying.
Oil markets are shrugging off the latest round of escalation between Israel and Iranian proxies that surround it, particularly Hezbollah in Lebanon. The reason remains the same: There is no oil output currently at risk, unless Israel were to massively escalate its activities and hit Iranian production facilities.
Ultra low sulfur diesel on the CME commodity exchange moved in a tight range during the last two weeks of September. From a settlement of $2.1367 a gallon on Sept. 17, it hit a high settlement of $2.1805 a week later, on Sept. 24. Monday’s settlement was $2.1318 a gallon, up just 9 basis points from Friday and about 50 bps less than where it settled on Sept. 17.
Instead, the market got several pieces of news that could be considered bearish.
- Hurricane Helene by last Wednesday had resulted in shut-ins of 511,000 barrels a day of oil production in the Gulf of Mexico as producers closed platforms and evacuated personnel. That data comes from the Bureau of Ocean Energy Management, which manages offshore oil production. Its final Helene-related report on outages came Sunday when just 59,000 barrels per day remained offline, a clear sign that there was no damage to platforms that would have resulted in a longer-term loss of supply.
- An agreement in Libya on management of the central bank paves the way for a resumption of Libyan oil production, which had been largely shut because of the dispute between the eastern and western halves of the country, according to news reports. Argus Media estimated that because of the dispute, Libyan oil production had been cut in half to 500,000 barrels per day. An agreement between the two sides would restore another half-million barrels per day of output.
- Demand for diesel in coming weeks inevitably will be a mix of diesel consumption to get relief supplies into Helene-affected regions, tempered by the inevitable short-term hit on consumption as normal activity slows.
- That short-term hit on demand is coming as the EIA reported its two-month lag data on supply and demand – data that is considered more accurate than the weekly EIA report that is closely watched nonetheless. It showed that in July, demand for ULSD was 3.69 million barrels per day. While that is up from the June figure of 3.59 million, excluding 2020 and 2021, it is the lowest figure for a July since 2017. It’s also lower than July 2014 and 2015.
The one piece of bullish news came in the daily commentary by John Kemp, the former chief energy correspondent from Reuters who is now independent.
Kemp closely watches data from the CME and the ICE commodity exchange on trader positions, which is reported weekly by the exchanges and government agencies. He had been reporting that data showed traders were taking record short positions in the market, betting on lower prices, as recently as two weeks ago.
But with the overall oil market reaching a degree of stability, that has shifted, he said in his Monday report.
“Oil investors have started to repurchase some bearish short positions and build fresh bullish ones, as they recoiled from the record short position two weeks earlier, when concerns about an economic slowdown were peaking,” Kemp wrote.
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