The weekly Department of Energy/Energy Information Administration weekly retail diesel price rose for the 15th consecutive week Tuesday, tying the record for the most consecutive weeks of increases in that key benchmark.
Meanwhile, short-term increases in wholesale prices at what is known as the rack, which threatened to surge as a result of refinery closures because of the pandemic, stayed in check Tuesday. But with the list of refineries in Texas closed because of the cold snap having grown considerably, there is little doubt that the U.S. supply of diesel is going to take a hit in the coming days and weeks. What isn’t known is how much demand is being impacted by cold weather and frozen roads.
The weekly DOE/EIA average retail price, the basis for most fuel surcharges, rose 7.5 cents a gallon to $2.876. That increase is the largest in the 15-week series of increases, and the price now stands at 50.3 cents per gallon more than where it was on Nov. 2, the last price the DOE posted that had recorded a decline from the prior week.
Oil markets are surveying the impact from the storms that slammed Texas along with the cold weather that sent temperatures to levels that refineries not built for such frigid conditions can often find challenging. Reports said the temperatures in Texas were the lowest in 32 years. That would make them the most bone-chilling since 1989, and on Christmas Eve that year, an explosion at an Exxon refinery in Baton Rouge that did massive damage to the facility was generally believed to have been partly caused by the brutal cold. So there’s a history of bad things happening to refineries during cold snaps.
The list of refineries in Texas that shut is a long one. S&P Global Platts listed 13 downed refineries with capacity of approximately 4.4 million barrels a day. The U.S refining system recently has been processing about 14.6 million to 14.7 million barrels a day.
Prices rose both for the benchmark ultra low sulfur diesel contract on the CME commodity exchange and in physical markets. On CME, ULSD climbed 4.3 cents a gallon to settle at $1.8144. That’s the highest settlement on the ULSD contract since Jan. 26 of last year, when it settled at $1.8592 a gallon. That date is right at the start of the fall in oil prices related to the coronavirus, with a settlement of $1.9103 on Jan. 14, 2020, marking the high-water mark before the virus-inspired decline that was sometimes slow and sometimes frantic began in earnest.
The spot physical market was higher as well, with Platts reporting that what is known as the prompt cycle on the Colonial Pipeline trading at the CME price minus 3.5 cents a gallon. Last Friday, that spread was 5.4 cents per gallon.
That’s a significant move but the market is apparently being cautious because nobody is completely sure what is happening with demand. The FreightWaves Outbound Tender Rejection Index for Dallas and Houston suggests a lot of drivers are staying off the roads. Additionally, some of what might be staying off the road are the tanker trucks taking fuel to retail outlets, including truck stops.
That led to social media buzz that there were shortages of diesel developing at some trucks stops. FreightWaves sought comment on diesel shortages from three of the largest truck stop operators — Love’s, TA and Pilot Flying J — but heard back only from Love’s. The company confirmed there was no diesel available at some outlets.
“There are business disruptions and power outages at select Love’s locations,” a spokesman said in an email to FreightWaves. “In addition, because of the significant number of roads and highways closed, fuel terminal closures in Texas and the safety of our fuel delivery drivers, diesel is unavailable at a few Love’s locations.”
That potential lack of demand from trucks staying put may be why some wholesale prices showed only limited increases on Tuesday, effective late in the day. For example, one source said Dallas wholesale rack prices were up only on average 1 cent in Dallas and on average 2.5 cents in Houston. Companies setting rack prices tend to look at both increases or decrease in the CME price — which was more than 4 cents — and the spread in the physical market between the CME price and the physical price, which also strengthened. Rack increases of that limited number look restrained compared to those other prices moves.
As for the 15th consecutive increase in the DOE/EIA price, the price has moved up 21.25% since Nov. 2. The streak that began in June 1995 resulted in the DOE price being up 15.77% after 15 weeks. A streak that started in December 2010 rose 23.6% over 15 weeks, declined slightly for one week and rose another four weeks. At the end of that run of increases in 19 out of 20 weeks, the price was up 29.82%.
In 2016, there was no 15-week streak but the price did rise in 16 of 17 weeks for an increase of 11.5% overall.
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