The Department of Energy/Energy Information Administration weekly retail price did something it had done only twice in the past 10 years: go up by double digits.
A day later than usual because of the Columbus Day observance, the price that serves as the benchmark for fuel surcharges climbed 10.9 cents a gallon, to $3.586.
One of the two two times in the past decade that the price rose by double digits was Sept. 4, 2017, with oil markets reeling from the impact of Hurricane Harvey. It climbed 15.3 cents that day to $2.758 a gallon, so it was a much larger percentage increase than the new price posted Tuesday.
On Aug. 13, 2012, the DOE/EIA diesel price rose 11.5 cents a gallon to $3.965 a gallon. Although that was in the middle of hurricane season, there were no storms around that date that would have impacted prices.
With the latest increase, the price is now sitting at its highest level since Dec. 1, 2014, when it was $3.605 a gallon. Last week’s price of $3.477 was the highest since one week later back in 2014, when oil prices were on a slide that continued into 2016.
Diesel prices have been leading the market higher on the CME commodity exchange. Since a recent low settlement of $2.1601/gallon in the ultra low sulfur diesel market on Sept. 20, ULSD prices have risen by 16.2%, settling Tuesday at $2.508 a gallon. That marks an increase of 16.1% during that time, while the West Texas Intermediate benchmark crude price for the U.S. is up 14.8% during that period.
The Tuesday settlement in the ULSD contract was the highest since a settlement of $2.557 a gallon on Oct. 13, 2014, almost seven years ago to the day.
Helping to drive the strength in diesel are tight inventories. In the latest weekly report of the EIA, days cover for distillates, which includes diesel, stood at 31.2. That means that inventories alone could cover distillate consumption in the U.S. for 31.2 days.
That is more than four days less than the five-year average of 35.4 days for the first weekly report of October, which excludes 2020 numbers, which were high by historical standards due to the pandemic. The 31.2 days’ figure is the lowest for the first week of October since 2000.
The shape of the forward curve in the ULSD contract is also screaming tight inventories. ULSD prices 12 months out on the curve — for delivery in November 2022 — are now almost 17 cents less than the price for delivery of ULSD in November 2021. That market structure is called backwardation, and when the market “flips” into backwardation, it is a sign of tight inventories. The 17-cent backwardation is the biggest in two years and is signaling tight diesel markets not just in New York Harbor, the location basis for the CME contract, but also around the world.
The increase in the DOE/EIA price was signaled by moves in the national average wholesale price for diesel, as recorded by the ULSDR.USA data stream in SONAR. That shows a move of just over 15 cents a gallon since Oct. 1 through Oct. 12.
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