When it comes to retail diesel prices in the past week, the real estate adage applies: location, location, location.
The average national retail price for diesel, published by the Department of Energy/Energy Information Administration, rose just 4.8 cents a gallon in a week to $4.54/g when the futures price for ultra low sulfur diesel has risen more than 25 cents a gallon in the past four trading days on a variety of factors. It’s the highest price since $4.539/g on February 6.
But that solitary number used for most fuel surcharges fails to reflect huge divergences in different regions of the country.
For example, the East Coast average rose just 0.5 cents a gallon, and the price for what the Department of Energy calls the Lower Atlantic — West Virginia plus all the states on the Eastern Seaboard from Virginia south to Florida — actually declined 0.2 cents. The northern portion of the East Coast rose 1.1 cents while the middle states climbed 2.6 cents.
The Midwest (4.4 cents a gallon) and the Gulf Coast (4.1 cents) were both up less than the increase in the national average.
The Rocky Mountains were up 8.3 cents a gallon, but as a share of the total market, it’s small.
That leaves the West Coast, where retail prices are soaring. The average for the West Coast was up 14.5 cents a gallon, to $5.535 a gallon. But that number can be broken out into two figures: the West Coast less California, which rose 12.5 cents a gallon to $5.153 a gallon; and California, which was up 16.9 cents a gallon to $5.97 a gallon.
California’s average retail diesel prices were more than $6 a gallon for most of last year, from March into November. And while the latest DOE/EIA estimate for the West Coast is still below that figure, it isn’t by much, and there are other averages that say it’s already at that number.
A look at certain individual retail outlets from Pilot Flying J, which provides a downloadable spreadsheet of its retail prices, shows many outlets already above $6 a gallon.
Spot market differentials reflect the West Coast strength. Those differentials are for physical barrels traded at key locations, such as the Gulf Coast, Chicago, New York Harbor, a Midwest region known as Group 3 and the West Coast. The differentials are a premium or negative differential to the CME ULSD settlement price, and traders swap barrels on that basis as opposed to an outright price for the full barrel.
Those differentials provided by DTN Energy show a market where premiums have shown some strength in most markets but are blowing out on the West Coast.
The spread was 10 cents a gallon on July 21. It is virtually always higher than the CME price, which is a New York Harbor basis contract.
According to the DTN data, it hit 30 cents a gallon by Aug. 9, 40 cents a gallon on Aug. 16 and 50 cents a gallon on Aug. 25. On Monday, it was 58 cents a gallon.
Weekly data from EIA does not suggest any slowdown in California refining activity that would lead to that region spiking, but refinery operating rates are slightly less than historic norms.
The refinery utilization rate for the West Coast, known as PADD 5, in the week ending Sept. 1, the most recent data, was 90.2%. That is higher than the prior three years but less than the 94.7% from the first weekly report of September in 2019, the 97.6% in 2018 and the 92.7% in 2017.
The outright price of ULSD on CME continued its recent climb Monday, rising 6.31 cents a gallon to $3.3623 a gallon. It was the highest settlement since Jan. 26.
If there was any positive news for diesel consumers to take from Monday’s market, it was that crude softened slightly and traders were quoted as saying that recent gains in the crude market are hitting up against technical resistance points. Global benchmark Brent crude was down 1 cent to $90.64 a barrel, and West Texas Intermediate declined 22 cents to $87.29 a barrel.
But with the increase in diesel prices on CME, that meant that the spread between Brent and ULSD continued to blow out. On a straight front-month-to-front-month comparison, the ULSD-to-Brent spread climbed to $1.20 a gallon. Although it was higher than $1.20 a gallon one other day in August, that spread has not consistently been above $1.20 since January.
For purposes of comparison, in 2019 — the last year before the pandemic, before the impact of IMO2020 and before the Russian invasion of Ukraine — that spread averaged just under 32 cents a gallon for the year.
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