For the first time since March, the benchmark price used for most fuel surcharges has risen two straight weeks.
The price published by the Department of Energy/Energy Information Administration for Monday is $3.769 a gallon, an increase of 3.4 cents. It marks the first time since the weeks of March 18 and 25 that the price went up in consecutive weeks.
There has been no obvious reason for the increase, as demand remains subdued and there are no significant disruptions to supply.
But in his weekly report on energy markets, longtime energy economist Philip Verleger said manipulation of markets may be a reason for a recent increase in the price of Brent crude, the world’s benchmark, which in futures markets rose from a settlement near $77.50 a barrel on June 4 to settle Monday at more than $86.
Verleger’s report discusses the activities of two global trading companies, Gunvor and Trafigura, acquiring significant quantities of two grades of crude that can be used to help set the price of the dated Brent assessment of S&P Global Commodity Insights, which contains the legacy Platts business that publishes the dated Brent assessment. (Disclosure: The author of this article published the first dated Brent assessment for Platts in 1987.)
Citing data for dated Brent prices (as opposed to the commodity price for Brent, which is not a physical barrel), Verleger says the price of dated Brent rose more than 11% from June 7 to this past Friday. He said that by some measures, this upward move over that period was in the top 10 magnitudes of market shifts going back in his extensive database of prices.
Citing reporting by Bloomberg, Verleger says during that period, Gunvor and Trafigura had heavily bought cargoes of crude oil from the North Sea that are part of the data pool of prices that can be used to set the dated Brent price. The crudes to be used in setting the dated Brent price can vary daily depending on market conditions, though the list of crudes that can be considered does not change and is expanded only after a lengthy process.
Trafigura recently was hit with a $55 million fine from the Commodity Futures Trading Commission for what the CFTC said was manipulation of another SPGCI assessment (not dated Brent) through its trading platform colloquially referred to in the oil industry as “the window.”
Similarly, Verleger cites Reuters reporting that there was heavy buying of West Texas Intermediate crude delivered at Midland, Texas, which in the past year was added as a crude that can be considered in establishing the dated Brent assessment, though West Texas is a long way from the North Sea. (The WTI price that trades on the CME commodity exchange is for oil delivered in Cushing, Oklahoma.)
“If the traders’ purchases of most Brent cargoes are part of an effort to boost crude prices, as we believe it is, the parties involved are taking advantage of the vulnerable manner in which global crude oil is priced,” Verleger said. “The use of dated Brent to establish the transaction cost of perhaps 60% of the crude moving in global trade has been subjected to significant criticism for years. Efforts to change the system, though, have failed.”
If there was an effort to drive the price of crude higher, that often might leave refined products in the dust. That has not happened with diesel.
Going back to June 7, the date Verleger cites as the start of the potential squeeze, the price of ULSD on CME relative to Brent has actually risen. ULSD was 45.6 cents a gallon more than Brent on that day. It got as high as 51.66 cents a gallon a week ago, and on Monday a comparison of the settlements put the spread at about 48.4 cents.
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