March 12, 2024

As diesel settles into tight trading range, retail benchmark dips again


If the price volatility of the past few years has exhausted diesel consumers, recent weeks have been a welcome respite.

The stability in the market was driven home by the Monday release of the Department of Energy/Energy Information Administration average weekly retail diesel price, the basis for most fuel surcharges.

The price fell 1.8 cents a gallon to $4.004 a gallon. It’s the third consecutive week of a decline after a week of no change. Those declines have added up to a price that is 10.5 cents less than where the price stood on Feb. 19.

Stability at the pump is reflecting what is going on in futures markets and by extension wholesale markets. The wild swings of the past few years, fueled to the downside by the pandemic and then to the upside by the global inflation created by post-pandemic economic surge, are several weeks in the past. The benchmark price is now just 1.7 centsmore than $3.987 a gallon, where it stood on Dec. 11.

Ultra low sulfur diesel on the CME commodity exchange settled Monday at $2.6518 a gallon, up 1.09 cents. While recent intraday moves have been relatively large — down 5.38 cents a gallon Friday, just two days after an upward move of 5.68 cents — the trend has been that gains are soon offset by declines.

The end result has been that ULSD on CME settled Feb. 28 at $2.6538 a gallon. On Monday, eight trading days later, it was just 65 basis points lower.

It isn’t just ULSD. The market for Brent crude, the world’s crude benchmark, climbed above $80 a barrel Feb. 2 when it settled at $82.19. Brent’s highest settlement since then was $83.68 on the final day of February. In the past 11 trading days, the low settlement was $82.04 a barrel, and the high was $83.68 a barrel, an extremely tight trading range.

There just has not been major news to make markets move significantly up or down. To the contrary, factors that were supposed to move the market higher do exist, but they are stabilizing. 

For example, reports about tanker traffic through the Red Sea are that while there continue to be diversions to avoid potential attacks by Houthi militants, the number of them is not rising. 

Planned reductions in output from the OPEC+ group are not accelerating, according to the latest monthly survey from S&P Global Commodity Insights. Its report on February production showed output flat from January at 41.21 million barrels a day. 

“February was the second month of the group’s latest voluntary production cuts, which were supposed to take approximately 700,000 b/d off the market in the first quarter of 2024,” SPGCI said in releasing its numbers Friday. “The group has yet to deliver on this pledge. The survey showed that OPEC+ countries implementing cuts produced 175,000 b/d above their combined quotas in February — a compliance rate of 97.8%.”

The value of the dollar, which can have a significant impact on oil prices, has been relatively calm. It closed 2023 at about 100 as measured by the DXY index. It closed Monday at about 102.7. While the upward move would have a bearish impact on oil prices, that change over almost 2 ½ months has not been enough to generate large swings in the value of the greenback.

A good test of whether the oil market is responding to news or clear shifts in fundamentals can come from reading the daily commentary of various financial news sources. If those articles resort to a somewhat vague list of factors that could be cited any day of the year, it’s probably because there isn’t a lot of outside news impacting markets.

So Bloomberg’s summation of the market Monday, after noting that crude oil last week had its least volatile market since late 2021, cited bullish factors like OPEC+ production cuts (although the group is falling short of its target, as SPGCI noted) and “Middle East tensions,” while bearish factors are “offset by rising supply from outside the group and persistent concerns around the economic outlook for top importer China.”

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