DOE/EIA diesel price nears pre-Ukraine-invasion level with latest drop
The benchmark used for most diesel surcharges has fallen for the eighth straight week. (Photo: Jim Allen/FreightWaves)
Even as the Department of Energy/Energy Information Administration’s benchmark diesel price continued to trend towards its pre-Russian invasion of Ukraine levels, a few bullish developments converged to push oil futures prices higher on Monday.
The DOE/EIA diesel price fell 5.7 cents a gallon to $4.128 effective Monday. It is the eighth consecutive week that the number used for most fuel surcharges has declined and the 17th week of the last 20.
On February 28, 2022, just four days after Russia invaded Ukraine, the DOE/EIA price was set at $4.104 per gallon, just 2.4 cents lower than Monday’s price. Although the futures and wholesale markets had reacted quickly to the invasion and had in fact already risen, the February 28th average retail price would not have reflected the invasion simply because retail markets, whether up or down, take time to adjust to any major changes to react in wholesale and futures prices.
The $4,104 per gallon level can then be seen as the last pre-invasion price, although technically it was announced post-invasion. And with the series of declines that have brought the DOE/EIA diesel price down from a high of $5.81 a gallon on June 20th, the price of diesel at the pump has given up virtually all of its post-invasion gains.
Diesel futures prices last week were the quietest in months. After settling at $2.6787 a gallon on March 17, the ultra-low sulfur diesel (ULSD) price rose to $2.7403 on Wednesday before falling back and the week at $2.6952 a gallon closed, a move on the week of less than 2 cents.
But that calm ended on Monday in oil futures markets. As markets were fueled by multiple factors, the price of ULSD rose 2.71% to $2.7704 a gallon, up 7.52 cents a gallon from Friday. It is the highest settlement since March 10th.
Indeed, ULSD’s gains lagged other major oil contracts. West Texas Intermediate rose 3.55% and international benchmark Brent crude rose 4.17%. For Brent, the $78.12 a barrel decline is the highest since March 13.
On the optimistic side, the most immediate cause of the rise is said to have been market reaction to news that the Iraqi government and officials from the semi-autonomous Kurdish region had failed to reach an agreement on exporting about 400,000 barrels a day of crude oil from Turkey’s port of Ceyhan , resulting in a halt to pipeline flows carrying oil to Ceyhan for export from the Mediterranean.
This oil must be transported through Kurdistan, whether produced in the Kurdish region or in the rest of Iraq, before entering Turkey for export.
At the heart of the problem is a longstanding dispute between the Baghdad government and the Kurds over control of oil exploration and exports.
News reports quoted operators in the Kurdish region as saying that while they have been able to store oil for the time being, they will soon run out of space and will have to stop production if the dispute is not resolved.
Another bullish factor, particularly for Diesel, was the ongoing strikes in France amid turmoil over changes to the country’s pension system.
Argus Media reported that French refinery closures due to the strikes now total 900,000 barrels a day, or almost 1% of global demand.
The loss of diesel production from the French refineries is not yet reflected in the differences in the US market. Given the size of diesel trading between the US and Europe, expect tighter diesel markets to be visible in the range between CME price and physical barrels in regional markets.
However, according to DTN Energy, the spread between the CME price and the price for barge volumes of ULSD in the New York harbor remains moderate. It was priced by DTN at 0.75 cents a gallon for the last three trading days and was 0.5 cents a gallon a day earlier. A week ago it was 2.5 cents a gallon, so the spread has actually narrowed.
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