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Big reversal in DOE/EIA diesel price on back of broader market upswing

The increase in the weekly average retail diesel price published by the Department of Energy’s Energy Information Service rose by the third largest amount ever this week.

The benchmark used for most fuel surcharges was reported a day later than normal due to the Columbus Day holiday Monday. And its gain of 38.8 cents per gallon trails only two increases posted earlier this year at the start of the Russian invasion of Ukraine.

Increases of 74.5 cents per gallon and 40.1 cents per gallon were posted during the weeks of March 7 and March 14. On May 2, an increase of 34.9 cents per gallon was posted. The series of diesel prices from the EIA goes back to 1994.

With the big move upward, it brings to an end the near consecutive streak of declines in the DOE price. It had moved down 14 of the 15 prior weeks. 

Tuesday’s increase follows a week that showed spectacular gains in the futures and wholesale price of diesel. But given that there is a lag between futures/wholesale moves and retail prices, the strength of the prior weeks was likely to have been a larger reason for the Tuesday increase. 

From a recent low settlement price of $3.1291 per gallon for ultra low sulfur diesel on Sept. 26, posted on the CME commodity exchange, ULSD climbed roughly 88 cents per gallon to a settlement Friday of $4.0187 per gallon. That resulted in the national average wholesale diesel price, as measured in the ULSDR.USA data series in SONAR, rising to $4.449 per gallon Monday from a recent low of $3.369 per gallon on Sept. 27. 

Retail price increases actually have been trailing those moves. The FUELS.USA data series, which measures the spread between ULSDR.USA and the national average retail price, DTS.USA, stood at $1.545 per gallon on Sept. 27. It dropped almost a full dollar by Saturday, down to 55.7 cents per gallon, as retail increases, as sharp as they have been, did not keep up with the soaring value of wholesale diesel prices. 

Futures prices were propelled last week by news that the OPEC+ group would cut its production by 2 million barrels per day. However, given that few countries in that group are producing their allocation, it was expected to result in an actual output reduction far less than that. But it still drove the price of Brent, the world’s crude benchmark, up to a settlement Friday of $97.62 per barrel from the Sept. 27 low of $84.06.

But what is more notable for diesel consumers is that the price of the fuel in futures markets is again outpacing gains in crude. For example, taking the price of Brent and converting it to gallons, and subtracting that from the price of diesel, has produced a spread of roughly $1.68 per gallon on two of the last three trading days. It was near $1.20 per gallon as recently as the end of September. 

The weekly inventory report of the EIA released last Wednesday was another affirmation that stocks remain tight. U.S. inventories of ULSD again dropped below 100 million barrels, a number that had not been breached to the downside since 2014 prior to this year. 

Diesel is a distillate, as is heating oil. With October having arrived, it is difficult for stocks to build, given that many refineries are undergoing maintenance, which is normal for the autumn. The end result is that inventories are going into their season of greatest consumption at extremely low levels, which suggests that the spread against crude benchmarks is likely to remain high.

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