Oil markets Monday were caught in the middle of opposing bearish and bullish forces, while the benchmark retail diesel price moved down only slightly, given significant declines in diesel futures prices the past two weeks.
The Department of Energy/Energy Information Administration average weekly retail diesel price declined 1.3 cents a gallon to $3.755. It’s the fifth consecutive week the price used for most fuel surcharges declined, but the past two weeks have seen a total decline of only 2.4 cents a gallon.
It’s a relatively small two-week move given that ultra low sulfur diesel (ULSD) on the CME commodity exchange has been trending significantly lower. And while there is a lag between futures moves and retail prices, a decline of 2.4 cents in two weeks laid up against the size of the ULSD drop in the futures market looks small in comparison.
ULSD on CME settled at $2.4712 a gallon on July 25. It dropped to a settlement of $2.3368 three days later before popping up about 7 cents. But since then, the decline has resumed.
On Friday, ULSD declined 8.79 cents a gallon to settle at $2.3185. On Monday, it declined almost 2 cents to settle at $2.2986, the second-lowest settlement of the year.
That decline Monday of just about 2 cents stood in sharp contrast to the massive declines Monday in equity and other commodity markets.
Other commodities have been falling and dropped further in the global sell-off. For example, copper on the London Metal Exchange declined almost 4% Monday, though it was down a lesser 2.5% on the COMEX commodity exchange. Copper has long been seen as one of the most indicative commodities, long ago earning the nickname “Dr. Copper” for its ability to diagnose the strength or weakness of an economy.
But oil on Monday faced an entire different set of issues than other commodities beyond the collapse in equity markets.
Those issues helped restrain the decline in prices. For example, both Brent and West Texas Intermediate, the international and domestic benchmark crudes, respectively, fell 0.79%.
Oil markets are dealing with the very real possibility that the simmering tensions in the Middle East that began with the Hamas attack on Israel Oct. 7 may be about to extend into impacting oil production given the prospect of some sort of “hot” war between Israel – which produces natural gas in the Mediterranean – and Iran, one of the largest oil producers in the world.
Also in the Middle East, a Libyan warlord reportedly has ordered the shutdown of that country’s Sharara Field, the largest in Libya. According to S&P Global Commodity Insights, the field had been producing about 250,000 barrels per day of oil, declined to 100,000 barrels after protesters tied to the warlord, Saddam Haftar, entered the operating facilities of the field Sunday, and then shut completely Monday.
One thing that didn’t happen Monday: Hurricane Debby had no impact on any U.S. crude output or refineries.
The sell-off in equity markets and the fears it raised of a recession did lead one analyst to speculate that the plans of OPEC+ to begin restoring some of its production cuts may not come to pass.
In an appearance on CNBC’s Squawk Box, Helima Croft, managing director and global head of commodity strategy at RBC Capital Markets, said the group may ultimately not bring more production on to the market.
“If the trend continues, I just can’t imagine OPEC would go forward with increasing output into this market,” Croft said.
Further cuts can’t be ruled out, according to Croft. “The question is, would they go the opposite way, given the conditions we’re seeing?” she said.
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