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Up and down: DOE/EIA price way up, diesel futures plummet

On the same day that the benchmark Department of Energy/Energy Information Administration average retail diesel price rose by more than 5 cents, the futures price of ultra low sulfur diesel dropped by the second-largest one-day amount in the contract’s history.

The benchmark DOE/EIA price price rose 5.1 cents a gallon to reach $5.185 per gallon. After declining last week, the new price is now the second-highest ever in the history of the series that goes back to 1994. The $5.25 price of March 14 was the highest.

The first price of the year, disclosed on Jan. 2, was $3.613 a gallon, meaning there has been a $1.572 increase since the start of the year.

Monday’s large decline in the ULSD price came as demand concerns raised their head again following further COVID-related lockdowns in China. And while the 33.12-cent decline in the price was striking and the second-largest in contract history (the largest was almost $1 a gallon on March 9), it occurred soon after a run of seven consecutive days of increases in the ULSD price, taking the settlement price up more than $1.12 per gallon to settle last Thursday at $4.1534 a gallon. With the large drop Monday, ULSD settled that day at $3.7834 per gallon.

There were two other significant news items driving the oil market Monday. In a phone call with reporters, Kremlin spokesman Dmitry Peskov reportedly said that Russia can shift the crude oil rejected by Western buyers into the Asia-Pacific market. Should that occur to any significant degree, it could mean that the International Energy Agency prediction of a loss of 3 million barrels a day of Russian crude production due to a lost customer base could come in less than that. 

Second, the market is beginning to look toward this Thursday’s meeting of the OPEC+ group, an amalgamation of OPEC nations and non-OPEC oil exporters led by Russia. The group has consistently been ratifying additional supplies of 400,000 barrels per day to the market each month since last April. But in recent months, the producers have been falling short of their promised output.

While retail diesel prices look volatile — the past four weeks, the DOE/EIA price moved up 74.5 cents, up 40.1 cents, down 11.6 cents and now up 5.1 cents — it is nothing compared to what is going on in wholesale markets. Those wholesale prices are the basis for what the retail outlets pay, and they move in relatively tight correlation with futures prices, as well as any variations in regional spot markets, such as the U.S. Gulf Coast.

National average wholesale diesel prices as measured by the ULSDR.USA data stream in SONAR were $4.569 per gallon on March 9 — their recent high — and then plummeted to $3.401 a gallon by March 16. On Monday, they were at $4.197 a gallon.

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