The benchmark diesel price used for most fuel surcharges fell Monday for the eighth consecutive week by an amount that is dwarfed by the ongoing decline in the diesel futures market.
This week’s Department of Energy/Energy Information Administration average weekly retail price declined by 3.2 cents a gallon to $3.726. During that eight-week period, the price is down 33.5 cents a gallon. It’s also now 7.1 cents less than where it was a year ago.
Retail prices lag moves in wholesale and futures markets, so when they will catch up to the recent rapid decline in the price of ultra low sulfur diesel (ULSD) on the CME commodity exchange is hard to pinpoint. If the futures price rises from here, the impact on retail prices from the decline could be partly negated.
But for now, retail will need some time to catch up to a drop in the futures price of ULSD that took it Monday to a settlement of $2.2962 a gallon, down 6.74 cents. That is the lowest settlement since May 31, 2023, a little over a year ago, when ULSD on CME settled at $2.2596.
The scorecard on the breadth of the decline in futures prices is that from a recent high of $2.5792 on April 23, the price of ULSD is down 10.9%. From the calendar year 2024 high of $2.9642 on Feb. 9, the drop is 22.5%.
In the past four trading days, the decline in the front-month price is almost 16.9 cents. That straddles three days when ULSD for May delivery was the front month traded in the contract, and one day — Monday — when July barrels were the first month traded.
What set off the futures market decline Monday was the unexpected outcome of an OPEC+ meeting in Riyadh, Saudi Arabia, over the weekend, when the group decided to begin rolling back its production cuts in October.
As S&P Global Commodity Insights said of the OPEC+ plans, the group of exporters will seek to “start clawing back market share without upsetting oil prices.”
According to the SPGCI report, OPEC+ — which consists of OPEC and a group of non-OPEC oil exporters led by Russia — had voluntary cuts in place of 2.2 million barrels a day that were to expire at the end of this month. Conventional wisdom going into the meeting held that the group would again roll over those cuts with no end date in place.
But the group surprisingly decided to begin bringing back output at the rate of about 180,000 barrels a day beginning in October, SPGCI said. The increases will go on for about a year until the 2.2 million-barrel-per-day production cuts are restored.
There also were cuts of about 3.7 million barrels a day covering several other key countries, including Saudi Arabia. Those will stay in place, according to SPGCI.
The cuts began last year in order to support oil prices. A target price of $100 a barrel for Brent crude was not formally established but had been seen by the market as the level exporters were aiming to achieve.
Instead, after reaching a settlement of $96.55 a barrel last September, the price of world crude benchmark Brent has drifted lower, occasionally rallying but with the overall downward trend firmly in place. Its most recent settlement above $90 was April 16; Monday’s settlement of $78.36 was the first settlement less than $80 since Feb. 7.
Physical diesel markets in the U.S. have generally not been falling faster than the decline in the ULSD futures price. In some markets, spreads between the physical market and the CME ULSD market have been strengthening.
For example, in the market for diesel on the Buckeye Pipeline, a system that serves markets between Ohio and the U.S. East Coast, ULSD traded at a minus-21-cents-a-barrel differential to CME ULSD Monday. It was minus 30.5 cents on May 24.
But in Chicago, there was further weakness. A negative-28-cent price Monday was weaker than minus 20 cents on May 22.
Los Angeles ULSD on Monday was just negative 1 cent after being minus 15 cents on May 21.
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