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Benchmark DOE/EIA diesel price down 5.1 cents, 10th decline in 11 weeks

Retail diesel prices continue to slide and did so last week even as diesel futures were mostly steady for a change.

The Department of Energy/Energy Information Administration average retail diesel price fell 5.1 cents a gallon last week to $5.033. The benchmark price used for most fuel surcharges has now dropped 10 of the past 11 weeks and is down 77.7 cents a gallon since its high of $5.81 on June 20.

The decline came during a week when futures and wholesale prices were mostly stable, particularly in comparison with the wild volatility of most of 2022. 

Between the settlement of $3.5780 a gallon on Sept. 2, closing out that week, and the settlement a week later of $3.5787 on Friday, the benchmark futures price moved just 0.007 cents a gallon.

But what’s significant now are the advances of the past two days. In the same way that bearish trends prevailed in the market for the second half of August, traders in the past two trading days suddenly are looking at various bullish factors. The result has been significant gains in the benchmark price of Brent crude, which settled last Wednesday at $88 a barrel and is up to $94 after the Monday settlement.

Diesel has failed to keep up with those gains. The spread between front-month Brent and front-month ultra low sulfur diesel (ULSD) on CME stood at $1.4908 a gallon after last Wednesday’s settlement. That spread appears to be the highest in the history of the two contracts.

But Brent’s gains outpaced diesel the next three days, and the spread Monday was down to $1.365 a gallon.

One of the key factors driving markets higher the past few days has been the sudden fall in the value of the dollar. Over the past several trading days, the DXY dollar index contract on the ICE commodity exchange has been down as much as 300 basis points, a steep drop in such a short time. As oil prices and the value of the dollar tend to move in opposite directions, and oil has been lifted by the spectacular increase in the value of the dollar in recent weeks, that now has been unwinding in the last few days as the dollar has weakened. 

There is a list of other factors that are not necessarily new but are now being cited by analysts as the cause of the increase in the past few days. One is the looming end to releases of oil from the Strategic Petroleum Reserve, which at times have equated to 1 million barrels a day, in essence creating a supply of oil larger than all the oil produced in Algeria, a member of OPEC. That program is expected to wind down in the next few weeks.

Another factor: the potential disruption to supply of crude by rail. The latest full-month data puts intra-U.S. movements of crude and products in June at 185,000 barrels a day. That movement is threatened by a potential U.S. rail strike later this week.

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