Average U.S. retail diesel prices are starting to push back toward the highest levels of 2021.
The latest price published Tuesday by the Department of Energy/Energy Information Administration was $3.725 a gallon, an increase of 6.8 cents from the prior week. It puts the benchmark price less than 1 cent under the peak price of 2021, which was recorded just two months ago on Nov. 15, at $3.734 a gallon. The increase for the week was the largest since an 8.5-cent jump recorded Oct. 18.
With the 4.4-cent increase posted Jan. 9, the DOE/EIA price, used to set most fuel surcharges, is now up 11.2 cents a gallon in just two weeks.
And trading on Tuesday signaled that while it may be too early to declare what will happen next Monday, the trend is solidly higher.
Ultra low sulfur diesel on the CME commodity exchange rose 3.97 cents a gallon Tuesday, an increase of 1.51%, to settle at $2.674. It is the highest settlement on that benchmark price since the end of September 2014, when the weight of all the U.S. shale output was starting to push prices down, a trend that continued on and off for several years.
The ULSD price on CME is now up 11 consecutive days — every day the markets have traded in 2022 — to tack on 34.39 cents a gallon from the $2.3301-per-gallon price it settled at on New Year’s Eve.
One comforting piece of news for diesel consumers is that the spread between diesel and Brent, the world’s crude benchmark, is not widening. It suggests that diesel is not on its own bull market run and is riding along with the rest of the petroleum complex. But that is small comfort when Brent has gained almost $10 a barrel this year.
At a Tuesday settlement of $87 a barrel, forecasts that the benchmark could reach $100 do not seem unrealistic anymore.
In an article about the thinking inside OPEC, Reuters summed up the current market: “Until recently, the prospect of a return to triple digits was viewed as remote, but the market has recovered quickly from the unprecedented slump in demand sparked by the pandemic in 2020 with oil prices at one point turning negative.”
Tuesday’s increase in oil prices came even as the value of the U.S. dollar rebounded from recent lows. There is an inverse relationship between the dollar and oil prices, and some of the recent increase can be attributed to weaker dollar values.
Geopolitics is never too far away from oil prices. On Tuesday, prices were seen as being boosted by a drone attack from Houthi rebels, based in Yemen, on oil facilities in the United Arab Emirates. The UAE has been largely spared from the endless Yemeni civil war that pits proxies of Iran and Saudi Arabia against each other.
Focus is increasingly turning to the OPEC+ group, which includes not only the members of OPEC but a group of leading oil exporters led by Russia. It has been pledging to put 400,000 barrels a day of new oil supplies on to the market each month since last April. But increasingly, the amount of oil added is coming up short.
That has turned the market’s attention to the question of spare capacity and how much more oil is out there that can be added to supplies. It is a number that is endlessly debated, but from the perspective of a diesel consumer, here’s what you need to know: When the market is talking about spare capacity, it isn’t good.
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