Retail diesel prices have continued to trend lower, with the Department of Energy/Energy Information Administration weekly average retail price dropping another 6.2 cents per gallon as futures and wholesale markets have fallen on the back of financial markets dealing with uncertainty created by a potential banking crisis.
The decline put the benchmark price used for most fuel surcharges at $4.185 a gallon. It’s the 16th time in the past 19 weeks – the seventh in a row — that the price has dropped.
That slide has put the price now $1.156 per gallon, down from a recent high-water mark of $5.341 on Oct. 24. It also continues the steady “negative gains” it’s making on the price of $4.104 per gallon set on the Monday after Russia invaded Ukraine, which sent prices screaming upward to a post-invasion high of $5.81 on June 20.
Diesel’s recent decline on futures markets has actually seen it stay stronger than drops in crude, which in turn have been driven by banking issues and what that might mean for the global economy and oil demand. The spread between ultra low sulfur diesel (ULSD) on the CME commodity exchange and world crude benchmark Brent on the same exchange widened out to just over 93 cents a gallon on Monday.
That spread was about 72 cents per gallon as recently as March 9.
Financial market concerns tend to hit crude before hitting products, so the relative strength of diesel is not a surprise. By contrast, West Texas Intermediate, the U.S. crude benchmark, settled Friday at $66.74 a barrel and rose 90 cents Monday to $67.64. It settled at more than $80 a barrel as recently as March 6.
Oil markets Monday were buzzing with the news that Goldman Sachs, which has long had a bullish bias toward higher prices, has backed off its earlier forecast that Brent would average $94 a barrel for the coming months and be at $97 by the end of the year, according to several news reports. That forecast for the end of the year had been $100 a barrel.
According to the reports, Goldman Sachs said in its outlook Monday that “oil prices have plunged despite the China demand boom, given banking stress, recession fears and an exodus of investor flows. Historically, after such scarring events, positioning and prices recover only gradually, especially long-dated prices.”
But there are some short-term developments that might be bullish for diesel. French refinery strikes Monday entered their seventh day. While refineries were reported to be continuing to operate, worker blockades prevented product from moving, though there were other reports that some product had been getting out to market.
Physical diesel markets in the U.S., which have been steady for several weeks, have shown increased volatility in recent days, coinciding with the French strike. The spread for physical barges of ultra low sulfur diesel in New York Harbor has moved between 1.25 cents and 4.75 cents per gallon in the last six trading days, with a price of above 4 cents not seen since the end of January, according to data from DTN Energy.
Meanwhile, the spread in the Gulf Coast between physical pipeline barrels of ULSD and the CME price has been heading significantly lower. DTN on Monday reported that spread to be minus-7.75 cents per gallon, the first time it had been at more than minus-7 in a month. If the French refinery strikes are affecting spreads in New York Harbor, they aren’t having an impact in the Gulf Coast yet.
Some bearish news from Russia was reported by Bloomberg. The news agency said that although seaborne exports of crude declined slightly last week, “there is still little sign that the country has cut production as it said it would this month.”
Russian exports declined by 90,000 barrels per day to 3.23 million last week, according to Bloomberg.
“As of yet, there’s no substantial evidence of the 500,000-barrels-a-day output cut that Russia said it would impose in March — though any drop in production at oil fields in Siberia may take some time to show up in flows from the Baltic or Black Sea ports,” Bloomberg reported.
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