For the sixth week in a row and the 16th time in the past 17 weeks, the diesel price used for most fuel surcharges has declined.

The benchmark price was pegged by the Department of Energy/Energy Information Administration at $3.855 a gallon on Tuesday. That’s down 2.8 cents from the prior week. Since June 20 of last year — the high-water mark with a price of $5.81 — the weekly average retail diesel price is down more than $1.95 a gallon.

The drop in the DOE/EIA price came on a day when oil prices across the board experienced a significant downturn, for reasons that appeared to be tied completely to economic uncertainty over whether the debt ceiling deal negotiated over the weekend would hold. Equity markets, meanwhile, finished little changed after earlier weakness.

Ultra low sulfur diesel (ULSD) on the CME commodity exchange settled Tuesday at $2.2808 a gallon, down 8.85 cents from Friday. It was the lowest settlement for the ULSD contract since a $2.2387-per-gallon settlement on May 4.

The DOE/EIA price was released a day later than usual because of the Memorial Day holiday. There also was no CME settlement Monday.

Oil markets continue to sink even as there are more bullish rustlings among traders than bearish ones. Some of the market speculation centered on this weekend’s in-person OPEC+ group meeting in Vienna to discuss future strategy.

Those bullish factors can be seen in the latest International Energy Agency report from midmonth, in which the agency increased its forecast for average world demand in 2023 by 200,000 barrels a day from just a month earlier.

It can also be seen in the same IEA report that says by the fourth quarter, the world will need OPEC+ to produce 45.2 million b/d to keep the market in balance. But in April, according to the latest survey by S&P Global Commodity Insights, OPEC+ produced less than 42.4 million b/d.

The OPEC+ meeting will be taking place following the first month’s completion of the production cuts the group announced in early April to be implemented in May. That reduction of about 1.1  million b/d so far has not shown to have tightened markets, with physical crude spreads seen as mostly stable to slightly weaker and little sign of physical tightness in the U.S. diesel market as well.

According to data supplied by DTN Energy, the spread between physical diesel in various spot markets around the U.S. and the price of ULSD on the CME has barely budged. Gulf Coast ULSD was reported by DTN Tuesday at 5.25 cents a gallon less than the CME price; at the start of the month, the spread was 4 cents less than the CME price. 

In New York Harbor, barge lots of ULSD on Tuesday were 0.25 cents more than the CME price. At the start of the month, the spread was 0.5 cents.

OPEC+ said the cuts were expected to last through the year. News reports have quoted several ministers from member nations of OPEC and the OPEC+ group of non-OPEC nations led by Russia as saying a further cut is unlikely to come out of the weekend meeting. 

However, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman told a forum in Qatar that what he called “speculators” who have bet on the price of oil dropping “will be ouching. They did ouch in April. I don’t have to show my cards. I’m not a poker player … but I would just tell them watch out.”

The reference to April was related to the market surge that first accompanied the announcement of the cut in production. The world crude benchmark reached a settlement of $87.33 a barrel on March 12. On Tuesday, Brent settled at $73.54 a barrel, and West Texas Intermediate, the benchmark U.S. crude, settled Tuesday at $69.46 a barrel, the first settlement below $70 since May 5.

The continuing decline in diesel prices comes in the face of an inventory picture that continues to tighten.

At less than 100 million barrels, U.S. inventories of ULSD for the week ended May 19 of 94.7 million barrels of distillate — generally about 90% diesel — were at levels that in recent years have been seen only during periods of high prices, such as last spring and fall. The latest EIA figure on days cover for all nonjet distillates, 26.7 days, is the lowest since last fall and significantly below where days cover generally stands for the third weekly report of May.

Days cover represents inventories divided by average daily consumption, to give a figure of how long inventories could supply consumption if production fell to zero and imports ceased. 

Consumption, despite the weak trucking market, is at or near normal. The latest EIA report put consumption of nonjet distillate at 4.198 million b/d, significantly above the six-year average of 3.963 million.

Despite those signs of tight diesel inventories and strength of demand, ULSD’s front-month spread against Brent on CME closed Tuesday at just under 53 cents a gallon. It was about 59.6 cents a gallon as recently as May 18.  

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