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DOE numbers show big divergence between national, East Coast diesel prices

The benchmark Department of Energy/Energy Information Administration retail diesel weekly average price rose 11.4 cents Monday, but it is regional differences that are particularly notable.

The latest price is the second consecutive week a new record has been established. Coming in at $5.623 a gallon, the average price of retail diesel is now roughly $2 more than where it started the year. 

But the week also produced big moves in the differential between East Coast diesel prices and the rest of the country. East Coast prices on average rose 20.6 cents on the week, while New England was up 23.8 cents, and what the EIA calls the Central Atlantic was up the same amount. The Lower Atlantic price, which would include prices from cities that are serviced with diesel supplies off Colonial Pipeline, rather than the supply-squeezed New York Harbor, was up just 17.9 cents.

Average East Coast prices are now 19.2 cents more than the national average. East Coast prices were less than the national average as recently as mid-January, and for all of 2021, averaged 1.5 cents less than the national average. Two weeks ago, the gap was 4.9 cents. 

One set of numbers that is significant: The physical diesel market is not showing signs of any easing of the East Coast squeeze of diesel supplies. According to price reporting agency General Index, the spread between its Gulf Coast assessment and the assessment in the New York Harbor region, as measured at the Colonial Pipeline in Linden, New Jersey, stood at 66.25 cents Monday. That is just slightly less than the 67 cents recorded Wednesday, and the spread rebounded from a Friday level of 55.75 cents a gallon, suggesting that there has been no significant change in the supply squeeze in the East Coast relative to the more widely traded Gulf Coast market. 

The spread is holding even as the outright assessments decline. A week ago, General Index assessed the East Coast diesel market at $4.9899 a gallon. On Monday, it was assessed at $4.5849. Given that the spread has held steady against a falling outright price, it means the spread between the East Coast and the Gulf Coast has widened on a percentage basis, suggesting no easing in East Coast tightness and possibly even more tightening.

Meanwhile, the signs of strength that the East Coast price is throwing off contrast with what is going on with the rapidly falling futures price of ultra low sulfur diesel on the CME commodity exchange.

The decline in the futures price of ultra low sulfur diesel has been significant. ULSD on the CME commodity exchange settled last Monday at $4.2049 a gallon. On that day, prices jumped more than 19 cents a gallon. But since then, the market declined four out of five trading days, recording drops of 12.22 cents, 15.57 cents, 8.7 cents and the 11.94-cent decline posted Monday. An 11.43-cent gain in the middle of that run was not enough to offset the  bigger slide.

There was some bearish news in the market. Saudi Arabia cut its price for June barrels, which it does by reducing the differential it charges for its oil and whatever international benchmark it uses in a particular region of the world. There also were reports out of Russia quoting Deputy Prime Minister Alexander Novak as saying that oil production in the county had stabilized, which suggests that the various official and unofficial embargoes against the country may have reached their limit.

Markets will be looking to this week’s release of the monthly International Energy Agency report for its estimate on the amount of production loss Russia has suffered as buyers have backed away.

Another notable aspect of the current market: The dollar is getting stronger at a lot slower rate than crude is weakening. There is an inverse relationship between the dollar and oil prices, though it is far from a 1:1 correlation. 

Since West Texas Intermediate crude reached its recent high price of $114.93 on March 23, it has fallen 10.3%. But the dollar has risen 5.2% during that time, a significant increase but one where WTI has fallen harder. 

Finally, it is generally extremely difficult for oil markets to hold up against an onslaught of plunging equity prices. The S&P 500 is down roughly 7% from its intraday high Wednesday, and a sell-off that steep inevitably drags commodity prices with it. For example, copper, long considered a bellwether commodity, is down 5.4% during that time. 

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