The benchmark price for most diesel surcharges has fallen the most in a week since the early days of the 2009 financial crisis, with physical markets suggesting further declines are ahead.
Since October 2009, the Department of Energy/Energy Information Administration’s weekly diesel price has not fallen as much as the 17.4 cents it fell on Monday. The price settled at $4.967 a gallon, the first time it has been below $5 since Oct. 3.
This week’s drop is only 1 cent more than the 16.4 cent drop recorded on July 25. The DOE/EIA had not fallen more than 17.4 cents since a drop of 19.4 cents on October 27, 2009, which concluded a four-week decline of more than 67 cents as the full impact of the Lehman Brothers collapse and other financial market turmoil was kicking into high gear.
The latest price drop came on a turbulent day for oil and diesel markets. These markets also suggest that retail diesel prices still have a long way to go to catch up with broader market conditions.
The FUELS.USA data series in SONAR, which reflects the spread between retail and wholesale prices, has topped $1.90 per gallon in recent days. This is easily the highest number in over four and a half years that SONAR has tracked the spread, which prior to this year’s huge volatility tended to move in the $1 to 1.10 range. $, but with significant fluctuations above and below this range. .
If wholesale prices were to be maintained at current levels, retail diesel would need to drop at least 50 cents and probably more just to return to some level of normality.
This retail-to-wholesale spread has been affected not only by recent declines in the price of Ultra Low Sulfur Diesel (ULSD) on the CME commodity exchange, but also by weak markets. physical that trade as a differential to the ULSD futures price.
For example, the daily ULSD differential in New York Harbor published by DTN Energy was $1 on November 15. This means that delivery of ULSD into New York Harbor in the days following November 15 was trading $1 higher than the price of ULSD on the CME commodity exchange. On November 15, ULSD on CME would have reflected the product for delivery in December.
This difference is normally a few cents. And on Monday, it had fallen to this level, assessed by DTN at a difference of 1.5 cents. The differential lost 98.5% of its value in just three weeks.
The benchmark US Gulf Coast physical price has never climbed like East Coast prices. On Nov. 15, it was negative 28.5 cents, according to DTN, meaning physical diesel on the US Gulf Coast was well below the CME ULSD price. It has since strengthened to minus 23.5 cents. But this is still well below normal prices, which are also usually 10 cents or less below the CME price.
These wide spreads on the East Coast and in other markets prompted refiners to run their plants at high levels, and they responded. In the more than 30 years of refinery operating rate data published by the EIA, there were only three times in the latest weekly report in November when the country’s refineries operated at a rate of operating higher than the 95.2% they recorded during the past week. November 25 last report published by the EIA.
This led to a significant loosening of stocks. The closely watched Days Cover figure for distillate stocks — which are typically 85% to 90% ULSD — came in at 29 days in this report for the week ended Nov. 25. This figure was less than 26 days a few weeks earlier and the highest since the end of September. Coverage days represent the number of days of current consumption that could be supplied by inventory alone.
The background to this move in diesel prices on Monday was the start of a price cap put in place by Western countries on purchases of Russian crude, combined with an EU ban on imports of Russian crude by road. navigable.
The cap of $60 a barrel for now would not impact Urals crude sales, the quality of the oil it ships to western markets, as the Urals price is lower at $60.
But a more immediate test will come with sales of ESPO, a crude exported from Russia’s east coast, which before Monday’s sharp declines was selling for more than $70 a barrel.
The prospect of the Russian cap being put in place and the possibility that it will eventually restrict Russian crude exports was seen as a factor in Monday’s early gains in global oil markets.
But the subsequent weakening of stock markets took oil with it. The end result was that the DOE/EIA price wasn’t the only one to cross a key figure; the CME price for ULSD followed suit, falling below $3 per gallon for the first time since Feb. 25, settling at $2.9998 per gallon.
Monday’s market volatility might best be seen by the fact that while ULSD settled below $3 a gallon, it traded up near $3.24 earlier in the day.
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