August 29, 2023

Jump in key diesel price brings gains to more than 70 cents since July 3


The weekly average retail diesel price used as the basis for most fuel surcharges made another move higher Monday, the same day when the futures price of diesel plummeted on the quick end to a potential supply disruption.

Moving up 8.6 cents a gallon to $4.475, the weekly price published by the Department of Energy/Energy Information Administration has now risen in seven of the past eight weeks. It was unchanged in the one week it did not rise.

It has increased 70.8 cents a gallon during that time, to the highest level since it was reported at $4.539 a gallon Feb. 6.

The gains at the pump are starting to get near to equaling the increases in the futures price for ultra low sulfur diesel on the CME commodity exchange. On July 3, the DOE/EIA posted its average weekly retail price at $3.767 a gallon. That was the final price in the string of declines before the eight weeks of gains since then.

The DOE/EIA price’s 70.8-cent increase since July 3 is not far behind the 82.64-cent rise in the futures price of ULSD in that stretch. That gap has been narrowing during the recent run-up.

The highest retail DOE/EIA price since February was posted on a day when the futures price of ULSD took a tumble, dropping 10.38 cents a gallon, the largest one-day decline since July 5. And it came just one trading day — Friday — after a 15.11-cent increase, the largest one-day upward move since January.

What drove the market into a two-day wild swing was the status of Marathon Petroleum’s Garyville, Louisiana, refinery. That facility, at just under 600,000 barrels a day, has one of the largest capacities of any refinery in the country.

The Friday closure was necessitated by a spectacular tank fire and an accidental release of naphtha, according to media reports.

But it was reported Monday by several news outlets that Marathon (NYSE: MRO) had begun returning shuttered units to operation, leading to the sharp decline in diesel futures. Gasoline futures also fell Monday, by just over 8 cents a gallon, even as crude prices rose.

In other diesel market developments in the past week:

  • The decline in the diesel futures price Monday doesn’t change the fact that the spread between diesel and crude has widened by an impressive amount.The spread between the front-month price of ULSD and Brent crude moved above $1 a gallon on Aug. 1, the first time it had been at that level since the end of January. It was below 50 cents a gallon briefly in April. And while it shot up temporarily on Friday to almost $1.30 a gallon before falling back Monday to less than $1.20 a gallon, it has been above $1.10 a gallon for the past seven trading days. The market sees a situation with low inventories, the start of refining maintenance season, the coming of winter and harvest season, alongside demand that is not particularly high but is at least average, and it has driven the market higher in line with that.
  • Hurricane Idalia is not expected to impact oil production or refining in the Gulf of Mexico. Its projected path is well to the east of where refineries and production platforms are located. However, there are reports of barge traffic into the west coast of Florida shutting down, and barges are the primary means for Florida to be supplied out of the Gulf Coast refining sector. That could impact prices at the pump if spot shortages emerge.
  • Although the U.S. East Coast has become a point of concern for diesel supplies in the fall, due to the maintenance-related shutdowns of two key refineries in September and October, there is no reaction yet in markets. The spot market spread between the CME ULSD price and barge deliveries of ULSD in New York Harbor was negative 25 basis points a week ago. On Monday of this week, it was negative 100 basis points, which is a weaker price. The regional DOE/EIA retail price showed no signs of East Coast diesel prices strengthening. Last week, the East Coast price was 3.3 cents a gallon more than the national average. This week, the two prices were equal.

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The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.

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