After four weeks of increases, the price used for most fuel surcharges fell in the latest posting by the Department of Energy/Energy Information Administration.
The average weekly retail diesel price posted by DOE/EIA declined 3.9 cts/gallon to $3.826. It puts the price just two cents more than where it stood last year at this point in the calendar.
After going through a period of volatility that could be measured in years, oil markets have fallen into a tight trading range that one leading energy economist called “very dull.”
In his weekly report, energy economist Philip Verleger used the term “dull” to describe markets. He did say that diesel market prices show evidence of tightness but were tighter at this time of the year in 2022 and 2023. The market is suggesting that “upward price pressure from the distillate complex will be muted,” he said. Diesel is a distillate, as is jet fuel and heating oil.
The softness in the market is evident in some physical markets. For example, according to DTN, the price of physical ultra low sulfur diesel in the Buckeye Pipeline system, which serves parts of the Northeast and the Ohio Valley, was 15.5 cents less than the CME price of ultra low sulfur diesel on Friday. On July 1, it was even with the CME ULSD price.
The Chicago market Monday was 21 cents less than CME ULSD. It was minus 3 cents on July 1.
Last week’s EIA inventory report reported that stocks of ULSD in the U.S. were 113.8 million barrels. That was a significant jump of about 4.5 million barrels in one week, though it followed a few weeks of decline.
At that level, they are not far from the average of the first week of July, excluding the bloated numbers of 2020, of 118.2 million barrels going back to 2016.
The monthly report of the International Energy Agency released last week continued its theme of a market that while it continues to deal with cuts from the non-OPEC group, still remains in a supply-demand standoff.
“World oil demand continues to decelerate, with second quarter 2024 growth easing to 710,000 b/d year-on-year, the slowest quarterly increase since 4Q22,” the IEA said in its report. “Chinese consumption contracted, as the country’s post-pandemic rebound has run its course. Global gains are forecast to average just below 1 mb/d in 2024 and 2025, as subpar economic growth, greater efficiencies and vehicle electrification act as headwinds.”
Meanwhile, on the supply side, the IEA said global supply climbed 150,000 b/d. “Solid monthly gains pushed second quarter output 910,000 b/d higher quarter-on-quarter,” the IEA said. “Growth of 770 kb/d is seen for 3Q24 with non-OPEC+ providing 600 kb/d of the gains. Annual increases of 770 kb/d are forecast in 2024 with gains of 1.8 mb/d next year.”
The inability of the oil market to move higher is not because the OPEC+ group is failing to reduce output. While many of its members may be producing above their agreed-upon quotas, the reality is that OPEC+ output is down 680,000 barrels/day since December, according to the latest monthly survey from S&P Global Commodity Insights.
It all adds up to a market there while there has been some volatility in the futures price of ULSD in late June and early July, but for now markets appear to have quieted.
The ULSD price on CME settled at $2.5169 on June 28. Four days later, it climbed to a settlement of $2.6343/g but within another four days was back down to $2.6182/g. It settled Monday at $2.5136/g, just 0.33 cts/g less than where it was on June 28.
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