On the back of a strong rise in the futures price for ultra low sulfur diesel last week, the benchmark used for most fuel surcharges increased as well.
The Department of Energy/Energy Information Administration average retail weekly diesel price climbed 3.6 cents, to $3.494 a gallon. It was the third increase in the past four weeks, but an 8.2-cent-per-gallon decline last week took that price to the lowest level it had seen since October 2021.
Diesel prices as measured by the ultra low sulfur diesel contract on the CME commodity exchange have risen sharply in the past week, though they pulled back slightly Monday.
From a settlement of $2.1326 a gallon on Dec. 6, the increase last week took ULSD to a high settlement for the week on Friday of $2.27 a gallon. Monday’s settlement dipped slightly, to $2.264 a gallon.
The big rise last week was not attributed to any significant change in oil fundamentals, though the news from the prior week that the OPEC+ group would delay its plan to begin rolling back its output reduction and put more oil on the market was a few days old before the increases began.
In a market report, Reuters reported that the upward move last week “benefited from the expectation that supply would tighten with additional sanctions on crude producers Russia and Iran, while possible lower interest rates in the U.S. and Europe would spur demand.”
The report quoted longtime analyst Jim Ritterbusch as saying, “we feel that last week’s events have been appropriately priced and that this week will be bringing fewer items capable of supporting oil prices.”
Oil prices have been restrained in part by spare global capacity, which was said to be – according to a Goldman Sachs report released Monday – in the highest quartile in history.
At the same time, inventories in the market as measured by various agencies, such as the International Energy Agency and the EIA, are near the lowest quartile. “This setup is relatively infrequent, as inventories and spare capacity tend to be positively correlated outside of price wars,” Goldman Sachs said in its report.
But the report added that spare capacity “can be interpreted as inventories available in the future.” And with that spare capacity near historically high levels, it has acted as a bearish factor for oil prices.
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