Retail diesel prices as measured by the benchmark used for most fuel surcharges surged again this past week even as the futures price has taken a two-day breather.

The Department of Energy/Energy Information Administration average weekly retail diesel price rose 11.2 cents a gallon, hitting $4.239 on Monday, the third consecutive week it has gone up. With this increase, it has risen 47.2 cents a gallon over the past five weeks, including one week when the price was unchanged.

Monday’s DOE/EIA price came on the same day that the ultra low sulfur diesel (ULSD) price on the CME commodity exchange fell 4.67 cents a gallon to $3.0155, marking the third trading day out of the past four that the key diesel commodity contract declined.  But the day it didn’t fall, ULSD rose almost 7 cents a gallon, so the Monday settlement is only a little more than 6 cents a gallon under last Thursday’s high, and is 63.82 cents more than the settlement of July 3, the most recent market bottom.

The price is at the highest level it has been since March 13. However, it is 75.4 cents less than where it was last year at this time.

Looking for a reason for this surge in price probably led to the understatement of the year from Goldman Sachs. In a commentary widely redistributed on “oil Twitter” about Saudi Arabia and its reductions in supply, Goldman said that “the Kingdom’s efforts to rebalance global oil markets amid concerns regarding the global growth outlook and upside supply surprises [appear] to be paying off.”

The Saudi cut of 1 million barrels a day that went into effect in July — and has been extended into September — on top of the 1.16 million-b/d reduction implemented in April by several oil exporters that operate under the banner of OPEC+ is now seen as the prime driver of a tightening oil market that has pushed products such as diesel even higher.

The Joint Ministerial Monitoring Committee of OPEC and the other countries in OPEC+ last week affirmed that the committee’s member nations had concluded that the 1.16 million-b/d cut should stay in place through the end of the year, suggesting there is little relief in sight on the supply side of the equation.

Diesel has outpaced the increase in crude. The spread between global crude benchmark Brent and ULSD on CME opened July at about 60 cents a gallon. It climbed to more than $1 a gallon, though it has fallen back in recent days.

Retail diesel prices are not driven just by the movement of futures prices. They also are tied to wholesale prices, and those prices in turn are impacted by what occurs in regional spot markets.

Those spot markets trade as a differential to the CME ULSD price. And that spread is not showing signs of a strong market in the U.S., unlike in Europe.

The price spreads in key U.S. markets have been mostly stable to weak, according to data provided by DTN. For example, the key Gulf Coast market has traded at a differential of 6 to 8 cents less than CME ULSD for several weeks, a differential that would not be viewed as particularly strong or weak. But it has been stable.

On the U.S. Northeast Buckeye system, the differential was CME ULSD plus 1 cent last week. On Monday, it fell to 75 basis points less than the futures price.

That sort of stability is not the case in Europe, according to Argus Media. In an article published Monday, the news and pricing service said the Amsterdam-Rotterdam-Antwerp trading hub “has received exceptionally little diesel and gasoil [a European diesel-like product] so far in August, starting to realize traders’ predictions of low supply this month.”

“Buyers said they have struggled to find sellers and sellers said they have little to offer,” the article said. It added that there are “heavy” refinery maintenance schedules on tap for the sector in the Middle East and India in the fall, and that significant maintenance is planned for some European refineries as well.

The question, then, is why diesel is outpacing crude, and the answers are not obvious. There has been discussion that the excessive heat on the Gulf Coast has led to reduced operations, but the weekly EIA data is not showing a significant downturn in refinery operations. The average utilization rate for the final week of July, excluding the pandemic-hit number from 2020, was 93.35%. Last week’s figure was 92.7%.

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