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DOE benchmark diesel price plunges while commodity markets roar ahead

Even as futures and wholesale diesel markets are surging once again, the benchmark retail diesel price used as the basis for most fuel surcharges has taken the biggest drop in more than seven years.

The Department of Energy/Energy Information Administration retail diesel price fell 11.6 cents a gallon Monday, the biggest one-week decline in more than seven years. Even with the decline, the latest price of $5.134 per gallon is the second-highest price in the history of the DOE series, with the prior week’s price of $5.25 being the only one that exceeded it.

The decline in the price even as futures and wholesale prices are raging higher reflects the lag in retail prices both going up and down in one week, at a rate not seen in recent history. Retail is slower to react, so it would have been moving over the past few days in reaction to the $1.40-a-gallon drop in futures prices — and a concurrent big decline in wholesale prices — that took place between March 9 and March 15. 

The increases since then of more than 77 cents per gallon are reflected in wholesale prices. On Monday itself, ultra low sulfur diesel climbed 20.88 cents.

But retail has yet to catch up, with the pump prices still moving down on the back of those earlier declines. 

The result is one of the most schizophrenic price shifts seen in recent years: The benchmark DOE price is down by an amount not seen since the last two weeks of 2014, whereas the key futures price, the ULSD contract on CME, shot up by an enormous number.

Driving the market in its move Monday and in recent days is the growing realization that the only thing likely to jolt the market back into balance is demand destruction. The International Energy Agency already has estimated that the official and unofficial closing of doors to Russian exports will require that country to shut in about 3 million barrels a day of its production. 

A growing move by Europe to formally sanction Russian exports could take that amount up to 4% to 5% of world supply. By any definition, that is a demand shock. And no matter how many barrels of Iranian or Venezuelan oil get counted as possible replacements, it won’t add up to the lost Russian output.

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