July 10, 2023

DOE/EIA diesel price higher after more bullish trend in oil markets


The diesel price used as the basis for most fuel surcharges reversed course this week, rising 3.9 cents a gallon for the first increase in three weeks and just the third in the past 23 weeks.

The Department of Energy/Energy Information Administration price was posted at $3.806 a gallon Monday. The reversal of recent trends came as gains in the broader oil market have been significant and sustained enough that some analysts say the weak market that has been the driving force for most of the first half of the year might have run its course.

The Brent market, the world’s crude benchmark, peaked this year with a settlement price of $88.19 a barrel on Jan. 23. After the early April announcement of a cut in production from the OPEC+ group of oil exporters, Brent rose as high as an $87.33-a-barrel settlement on April 12, climbing from prices in the $70s that prevailed for much of the second half of March.

But the OPEC+ cuts, even when bolstered by further Saudi cuts in addition to the OPEC+ reductions, did not have staying power in stemming the slide in prices. Brent on the CME commodity exchange settled at $72.26 a barrel on June 27. 

Since then, in mostly steady gains without any spectacular one-day increases, the price of Brent climbed as high as a $78.47-a-barrel settlement Friday before a decline Monday to $77.69. The Friday settlement was the highest since May 1.

The sense that the oil market may have hit a bottom and that fundamental supply and demand was pushing numbers higher was summed up in a statement to Reuters by the head of the International Energy Agency, Fatih Birol. 

According to Reuters, Birol said the IEA still sees the oil market as tight going into the second half of the year.

“Even in sluggish economic growth, China and other developing countries’ demand is strong,” he said. “Taken together with the production cuts coming from key producing countries, we still believe that we may see tightness in the market in the second half of this year.”

That strength is showing up even stronger in diesel markets. After a recent low settlement of $2.3091 a gallon on June 12, ultra low sulfur diesel (ULSD) on the CME climbed Friday to a settlement of $2.5591, up exactly 25 cents a gallon from its June 12 low. The price retreated slightly Monday, to $2.5532, down 0.59 cents.

More notable recently has been the strength of ULSD against Brent. The front-month comparison has climbed to roughly 70.3 cents a gallon, up from about 60 cents just one week earlier.

While physical market diesel spreads in the U.S. are not showing signs of any particular tightness, Bloomberg reported late last week that was not the case in Europe.

Citing refinery disruptions in Germany and the Persian Gulf, the news agency quoted Philip Jones-Lux, commodity owner at Sparta Commodities, as saying that the diesel market is being hit by reduced flows out of the Middle East. “[With] some volumes on water only expected to arrive toward the end of July, there is a need to entice more volumes out of storage in the short term,” Bloomberg quoted Jones-Lux as saying.

Water levels on the Rhine continue to be a problem in Europe as well, having the potential to  slow diesel deliveries along that waterway, which supplies parts of Germany, France and Switzerland.

Quantum Commodities, in an email, said the water level at the important measuring point of Kaub will likely decline to a level below 100 centimeters by the middle of this week, citing German government data. Quantum said that puts water levels at a number not seen since at least 2000.

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