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Retail diesel prices are slowly catching up with previous significant drops in fuel futures and wholesale prices, although both of these markets have risen from recent lows.
The Department of Energy/Energy Information Administration’s average weekly retail diesel price fell 15.8 cents to $4.596 a gallon on Monday. This represents the third straight week of double-digit declines, following drops of 17.4 cents and 21.3 cents per gallon, respectively.
It is also the first time since November 2008 that DOE/EIA prices, which are the basis of most fuel surcharges, have fallen by double digits for three consecutive weeks. Fourteen years ago, after the collapse of Lehman Brothers in September and the beginning of the Great Recession, the market was in a downturn.
The steady decline in prices at pumps shows that retail diesel continues to move toward normalcy, although there is still a long way to go.
FreightWaves SONAR spreads on FUELS.USA, reflecting the difference between SONAR’s average retail price found in the DTS.USA data series and ULSDR.USA’s average wholesale diesel price, have fallen over the past 10 days. Historically, this spread has always been volatile, but when roughly balanced, it typically moves toward a price of $1 to $1.05 per gallon.
But the spread hit $2.245 a gallon on Dec. 8, as futures and wholesale markets plunged and retail couldn’t keep up. surged to $1.805.
Given that the futures market does as well, this spread is likely to continue to fluctuate, with wholesale prices following movements in the futures and physical markets relatively closely. After a seven-day drop in eight days of trading earlier this month, the CME Commodity Exchange Ultra-Low Sulfur Diesel Price (ULSD) fell about 57 cents to a low of $2.7937 per gallon before a four-day reversal. The price has returned to $3.2834. .
Now prices are down again, with Monday’s settlement at $3.0534 per gallon, down 2.13% counter-cyclically to rising oil prices.
Because the fuel is a distillate like kerosene, weather is often a factor in winter diesel prices. The forecast for the rest of the week will see fairly low temperatures, but traders are now reportedly starting to pay attention to next week’s weather forecast, which is likely to be warmer.
For example, the forecast for maximum temperatures in Chicago for Friday and Saturday is around 10 degrees, but next week’s forecast for Chicago shows all days in the 40s solidly.
That forecast helped reduce delivery points for natural gas delivered Monday at Henry Hub, Louisiana, by about 75 cents per 1,000 cubic feet, or 12.8%. Diesel was expected to follow the lead of weather-affected natural gas.
The physical market has not been trending upwards lately. The physical spread of New York Harbor, which rose to $1 a gallon last month, has weakened significantly, according to DTN.
According to DNT, the spread was $1 in mid-November. This means that the price of his ULSD delivered in the New York Harbor in the next few days was $1 a gallon higher than his CME price of his ULSD in December. time.
New York Harbor barges delivered in the next few days are trading 1 cent per gallon below CME’s January ULSD, according to DTN. Numbers from just a few weeks ago.
Broad macroeconomic trends affecting oil have been quiet in recent days. The only real push and pull between bulls and bears in the oil market over the last few days has been about the pace of China’s reopening and what it will do to demand.
But still no broad consensus exists, with global benchmark Brent hitting a recent low of $76.10 a barrel on December 9 and rebounding to $82.70 just three days later, falling back below $80. That’s why we settled at $79.80 on Monday after returning.
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