All three legs of the diesel market are going through extreme volatility, and it showed up in the weekly benchmark price used for most fuel surcharges.
The average weekly retail diesel price for ultra low sulfur diesel (ULSD) posted by the Department of Energy/Energy Information Administration rose 21 cents, to $4.109 a gallon. As large as the 21-cent jump was, it was only the sixth-largest since Russia invaded Ukraine almost two years ago.
However, it was the largest since a 22.2-cents-per-gallon increase posted July 31. It put the benchmark above $4 a gallon for the first time since Dec. 4 and wiped out all the declines in the price since then.
Retail prices are the end result of movement in the futures and wholesale markets. The latter take their cues from the former and then can add on or deduct additional movements depending on local market conditions.
In the futures market, ULSD on the CME commodity exchange climbed 30.42 cents between a $2.66 settlement on Feb. 2 and last Friday’s settlement of $2.9642 a gallon. ULSD on Monday reversed that slide, which had run five consecutive trading days, and fell 4.46 cents, to $2.9196 a gallon.
It was in some of the localized markets, however, where the craziest action was taking place.
In spot physical markets, trading for diesel is done for diesel transported on either a pipeline or on a waterborne carrier like a barge or cargo. Trading is conducted as a differential to the CME price, and volatility in the past two or three weeks has been extreme, according to data provided by DTN.
For example: ULSD on the Buckeye pipeline system was 45 cents less than the CME price on Jan. 26. By last Thursday, it rose to minus 5 cents before falling back Monday to minus 17 cents.
The Chicago market, which has been most directly hit by the outage at the BP Whiting refinery in Indiana, was negative 57.5 cents a gallon on Jan. 26. That rose to negative 9 cents a gallon Wednesday and was negative 18 cents Monday.
The Gulf Coast market was negative 9.5 cents a gallon on Jan. 24. On Monday it was negative 1.75 cents a gallon.
Those sorts of swings impact wholesale prices, which are then fed through to retailers. In this run of higher wholesale and futures prices, retailers have wasted no time increasing their numbers at the pump.
Variations in the price movements have been dramatic, according to the regional retail prices published each week by the DOE/EIA along with the national benchmark.
In the East Coast’s New England and Central Atlantic areas, which are fed by ULSD tied to the relatively steady New York Harbor price, prices last week rose only 2.6 cents and 4.2 cents a gallon, respectively. But in the Lower Atlantic, some of which would be fed by the volatile Buckeye system, prices were up 21.4 cents a gallon.
The Midwest was up 30.4 cents a gallon, not surprising given the outage at Whiting.
The relatively tame moves in the Gulf Coast led to a 16.3-cents-per-gallon increase there.
In California, the site of the highest prices in the country, the increase in the DOE/EIA price was just 12.9 cents a gallon. But that region may be primed for higher prices; the differential for ULSD meeting the state’s more stringent environmental specifications was minus 15 cents less than ULSD on CME on Jan. 26 but was plus 8.5 cents a gallon Monday.
Besides the outage at Whiting, diesel markets have been dealing once again with tight inventories.
U.S. stocks of ULSD in the week ended Feb. 2 fell to 118.9 million barrels, according to the most recent weekly inventory report of the EIA. That is a large drop for one week and comes after several weeks of increase off a recent low of 96.3 million barrels on Nov. 17.
The strength in the market can be seen in its spread over crude. On a straight front-month basis, ULSD on CME rose to more than $42 a barrel above the price of Brent, the world’s crude benchmark, last Friday. It fell back to about $40.60 Monday. Before that, it had not posted consecutive days more than $40 since late October.
In an article on diesel markets published last week, Reuters senior market analyst John Kemp quoted Emma Howsham, an analyst at Wood MacKenzie, saying that inventories in the key North West Europe market are expected to fall over the next two months. Howsham’s basis for the prediction was the start of refinery maintenance season later this month or into March, and “tight supply from key export hubs, and the Red Sea-Suez Canal disruption impact on flows into Europe.”
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