Even as the diesel futures market shows signs of strength, the benchmark U.S. diesel price declined Monday for the eighth consecutive week.
The weekly average retail price posted by the Department of Energy’s Energy Information Administration, used as the basis for most fuel surcharges, was down 8.2 cents a gallon Monday, to $4.911 a gallon. It’s the lowest price since March.
The price brings the total of the eight-week decline to almost 90 cents, 89.9 cents to be precise.
The sharp declines are going on almost independent of what is happening in rising diesel futures and wholesale markets, as retail prices move toward levels more in line with historical levels relative to wholesale prices.
Traditionally, as evidenced in the FUELS.USA data series in SONAR, the average national price of retail diesel is $1 to $1.10 per gallon more than the average national wholesale diesel price. But there is tremendous volatility in that number.
Most recently, as diesel and wholesale prices began to plummet, retail prices proved “sticky,” and the FUELS.USA spread soared above $1.70 a gallon, as recently as Aug. 9. But by Sunday, that spread was down to $1.364 a gallon as retailers began to cut prices, a situation that inevitably occurs when a retail outlet buys a cheaper load of fuel and uses that lower cost to gain a competitive advantage in the almost hand-to-hand combat that is the feature of selling fuel on the street corner.
The decline in the DOE/EIA price came on a day when petroleum futures markets overall were lower.
U.S. crude benchmark West Texas Intermediate on the CME commodity exchange was down $2.73 to $89.41 a barrel, a drop of 2.96%. Global crude benchmark Brent slid $3.05, down 3.11%. Concerns over slow Chinese growth were cited as the primary cause of the petroleum decline, coming even as equities markets were stronger.
With ultra low sulfur diesel declining 7.75 cents a gallon to $3.4403, a 2.2% decline, it was yet another day when diesel prices have outperformed crude, either on the way down or the way up.
The end result is that the basic spread between first-month Brent futures and first-month ULSD futures reversed recent gains and is climbing. That spread was as high as just under $1.75 a gallon on June 22. That is far above the normal spread; a year earlier it was about 37 cents.
The spread moved off that June 22 high and sank as low as just under 88 cents a week ago. But with diesel’s recent gains and crude’s failure to follow suit, the spread was $1.17 to $1.18 a gallon in the past two trading days.
The futures price of diesel climbed last week with four days of sharp increases in the futures price. Prices between last Tuesday and Friday moved up 33.87 cents a gallon.
Last week’s gains were also helped in part by a new surge in the value of the dollar. The DXY index on ICE, the most widely watched dollar indicator, has risen to approximately 106.4 from roughly 104.6 on Wednesday, a sharp move in just four trading days. Commodities priced in dollars tend to move inversely to the value of the dollar.
The recent upward movement in diesel prices, whether it has been on an outright basis or a strengthening of the spread against crude, has a long list of reasons behind it: continuing low inventories, the approach of winter and harvest season in the midst of those tight stocks, and the possible impact — delayed but now arriving — from marine fuel standard IMO 2020, which was expected to shock diesel markets in 2020 when it went into effect, but with delayed consequences due to the arrival of the pandemic in the first quarter of that year.
Another factor boosting diesel is the continuing rise in natural gas prices. Diesel and other distillates often can be a substitute for natural gas in certain applications, including electricity generation.
The global strength of the natural gas market is beginning to kick back into the U.S. Evidence of that Monday, according to S&P Global Commodities Insight, which houses the former Platts division, was that Southern California spot natural gas at the SoCal delivery point rose to more than $12 per million Btu, climbing $1.61 to $12.455 per million Btu.
More articles by John Kingston
Drilling Deep: Monthly report raises concerns about the diesel market
Latest IEA report has plenty in it to concern diesel consumers