The key benchmark price used for most fuel surcharges is now down to levels not seen since July 24.
The latest weekly average retail diesel price posted by the Department of Energy/Energy Information Administration price, however, only had a few days to react to the plunging futures market that accompanied an OPEC+ meeting where the final agreement left most oil traders skeptical of the group’s efforts to combat a growing imbalance in global markets.
The DOE/EIA price declined 5.4 cents per gallon to $4.092, a drop of 5.4 cents per gallon. It has now declined nine of the last 11 weeks. It’s down 54.1 cents since a recent high on Sept. 18, and the price is down 87.5 cents per gallon from where it was a year ago.
The all-time high of $5.81 per gallon recorded on June 20 is now $1.718 per gallon in the rearview mirror.
With the normal lag in retail changes in place, it means that the retail price of diesel is not able yet to reflect the steep fall in global petroleum prices and in particular the price of ultra low sulfur diesel (ULSD) on the CME commodity exchange, both in the days leading up to last Thursday’s OPEC+ meeting and the days since.
From a settlement of $2.907 per gallon Tuesday on the CME, ULSD dropped four consecutive trading days to settle Monday at $2.6597 per gallon, a drop of 24.73 cents per gallon. During that time, Brent crude, the world benchmark, dropped more than $5 a barrel, to $78.03 per barrel from $83.10 per barrel.
The declines came in response to the OPEC+ meeting’s decision to produce a headline reduction in supply of 2.2 million barrels per day in the first quarter. But that number includes a 1 million b/d reduction by Saudi Arabia that is already in place as well as a 500,000 b/d cut in exports from Russia that is not necessarily a cut in output. Instead, the consensus calculations are that the new reductions from quotas will be 700,000 b/d.
But some of those member countries of OPEC+ already are struggling to produce their quotas, so the reductions may not amount to much. That could be a problem for oil exporting nations that are facing a 2024 in which virtually every model shows supply growth outstripping demand growth.
“[The] decisions technically would tighten the first quarter balance, but the market was expecting more,” Clay Seigle, director of global oil service at Rapidan Energy Group, was quoted by S&P Global Commodity Insights as saying following the meeting.
Two other energy-related developments Monday:
The Department of Energy is planning an aggressive push to refill the Strategic Petroleum Reserve. Bloomberg quoted Deputy Energy Secretary David Turk as saying that with some maintenance work on the SPR infrastructure now completed, the DOE can buy 3 million barrels per month. The news had no apparent impact on prices Monday.
The price of U.S. natural gas has now fallen back to the price of late September. Henry Hub natural gas settled Monday at 2.694, just above the $2.656/thousand cubic feet (Mcf) settlement of Sept. 24. In the interim, it settled as high as $3.515/Mcf on Nov. 3. But a slow start to winter in much of the U.S., combined with hefty inventories, have pushed down prices, all but eliminating much chance for some natural gas applications to switch to diesel because of more attractive oil prices.
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