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Jump in benchmark diesel price biggest since June

With diesel futures markets rising, retail prices gradually responding to big increase in ULSD on CME

The benchmark price of diesel was up by its biggest gain since June. (Photo: Jim Allen\FreightWaves)

The benchmark diesel price used for most fuel surcharges rose Monday by more than any increase since June.

The Department of Energy/Energy Information Administration average weekly retail price climbed 5.8 cents a gallon to $3.561. It was the highest increase since a more than 7-cents-a-gallon rise on June 17. But after that increase, the benchmark was $3.735, 17.4 cents more than the price posted Monday.

The increase follows several days of trading in the ultra low sulfur diesel (ULSD) contract on the CME commodity exchange that have significantly pushed up the futures price of ULSD. 


From a settlement on Dec. 26 of $2.2053 a gallon, the price of ULSD rose over five trading days to settle Friday at $2.36. It pulled back slightly Monday to settle at $2.3552.

While futures moves don’t immediately impact retail prices, they do have a quick effect on wholesale prices. The rate of effect on those wholesale numbers and retail prices is not a firm relationship and could take weeks to play out. 

Along with that increase in the outright price is a notable change in the spread between the first- and second-month contracts on the ULSD contract.

That spread has been in a structure known as contango for months. (FreightWaves data is incomplete on the second month settlement and how long the contango was in place.)


In a contango, the second-month settlement has a price higher than the first month. In a perfectly balanced market relative to supply and demand, this is the normal structure, as the higher cost for later-month delivery – for example, July relative to June – reflects the cost of storage and the time value of money.

A price for an “out” month does not reflect what traders believe prices will be when that month rolls around on the calendar. Rather, it is a complex brew of interest rates and the cost of storage, but more importantly, it is a signal of the level of inventories.

The inverse of a contango is called backwardation. In a backwardation, “out’ months are higher, and one of the reasons is a tightening of inventories. The tighter the inventories, the more demand there is for product to be delivered sooner rather than later.

Settlements on the ULSD contract the last three trading days of last week – New Year’s Eve as well as Thursday and Friday – flipped into backwardation. The second-month settlement for Monday’s market was not immediately available, but the data suggests it remained in backwardation to start the week.

The irony is that the move to backwardation – suggesting tighter inventories – came as the EIA last week reported a significant build in inventories for all distillates including diesel, but excluding jet fuel, which is also a distillate. That figure rose to 122.9 million barrels from 116.5 million barrels the week before, putting it solidly above recent averages for this time of year. 

Yet the contango/backwardation flip suggests tightening inventories, though the ULSD market will reflect what is going on with global distillate and other petroleum markets, not just those in the U.S.

Diesel continues to be a strong performer in the petroleum complex on CME relative to other contracts: domestic WTI crude, international crude benchmark Brent and RBOB gasoline, an unfinished gasoline blend whose price serves as a proxy for gasoline prices. The petroleum complex also tangentially includes Henry Hub natural gas.

The spread between ULSD and Brent, comparing just first-month prices and converted to cents per gallon, got over 54 cents a gallon last week and was just under that level Monday. It was under 37 cents as recently as September and until its latest breakout had, with a few single-day exceptions, been under 50 cents a gallon for most of the fourth quarter. 


Diesel may be reacting to cold weather after several warm winters that are not showing signs of a repeat performance in the U.S. or Europe this year. 

That fact is highlighted by developments in the natural gas market. Natural gas at Louisiana’s Henry Hub moved above $3 per thousand cubic feet (Mcf) in November and nearly settled above $4 per Mcf in December. Monday’s settlement of $3.672 per Mcf compared starkly to the settlement on the first trading day of 2024: $2.514 per Mcf. 

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.