The prospect of a wider war in the Middle East continues to fade and with it the prospects for $100 crude oil and higher price levels from the products that are made from it.
The Department of Energy/Energy Information Administration average weekly retail diesel price declined 4.5 cents a gallon effective Monday, bringing that benchmark down to $3.947 a gallon. It’s the third consecutive week and the fourth time in the past five weeks the price used for most fuel surcharges has declined.
Markets reacted in early February to not just Middle East tensions but the prospect of diversions of diesel and other petroleum shipments away from the Red Sea and Suez Canal. As a result, the DOE/EIA diesel price shot up 21 cents a gallon on Feb. 12 to $4.109. It held that level a week later.
But since then, even the relatively inconsequential recent back-and-forth between Iran and Israel hasn’t been able to stop diesel and crude markets from steadily moving lower.
The end result is that the DOE/EIA price Monday is down 16.2 cents a gallon from that Feb. 12 and Feb. 19 high. It’s been down seven of the past 10 weeks.
The decline in retail prices posted Monday appears to be a classic case of the retail market catching up to earlier declines in future and wholesale markets several days later. Last week, as retail prices were declining, according to the DOE/EIA, futures markets were barely moving but had slid the prior week. Between April 10 and 17, ultra low sulfur diesel (ULSD) on CME dropped about 13 cents a gallon.
ULSD settled April 18 at $2.5339. On Monday, it settled 26 basis points less than that, with little volatility in the interim.
Retail pushes are also benefiting from weaker premiums in physical markets. Those premiums reflect the difference between the CME ULSD price and the price of physical barrels of diesel on a barge or pipeline in primary markets.
For ULSD on the Buckeye Pipeline system, a transport service in parts of the Midwest and into the Northeast, the spread Monday was 5.5 cents a gallon less than CME ULSD. That’s slightly higher than last Thursday, when it was negative 7 cents, according to DTN. But on April 15, it was plus 6 cents.
The Chicago market has experienced similar movement. A negative 7-cent spread Monday was 8 cents less than the plus-1-cent spread on April 19. In Los Angeles, the spread Monday of plus 1 cent was down from plus 5 cents on April 22.
Futures markets also have reflected growing diesel weakness. The spread between ULSD and benchmark Brent crude on CME came in Monday at about $17.90 a barrel. On April 12, it was about $22.30.
Brent, the world’s crude benchmark, settled Monday at $88.40 a barrel. It’s the lowest settlement since April 1.
One news development Monday that might signal further weakness: reports that sanctions are being eased on some banks that will permit easier financing of energy-related deals out of Russia. The market is far from in agreement on whether sanctions have had any impact on supplies for months now, but easing them would at least take some of the ambiguity out of the market.
And in another bearish development, Reuters reported that data released by the Commodity Futures Trading Commission and ICE Futures Europe showed that “investors sold oil at the fastest rate for more than six months amid signs that Israel and Iran have chosen not to escalate their conflict, ensuring the rally in crude prices stalled well before reaching $100 per barrel.”
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