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Diesel down more than 9 cents as slide in retail levels continues

DOE/EIA pump benchmark following earlier declines in retail, wholesale prices

The benchmark price for most fuel surcharges dropped this week. (Photo: Jim Allen/FreightWaves)

Retail diesel prices continue to slide and catch up to earlier declines in futures and wholesale rates, as any impact from the European Union ban on imports of Russian products has yet to emerge.

The Department of Energy/Energy Information Administration average retail price declined 9.5 cents per gallon to $4.444 in the price posted by the EIA on Monday. Since Oct. 24, when the benchmark used for most fuel surcharges hit $5.341 a gallon, the most recent high-water mark, the DOE/EIA price is down just under 90 cents.

Following last week’s decline of 8.3 cents per gallon, the DOE/EIA price has declined 17.8 cents in just two weeks.

Prices at the pump are continuing to fall faster than recent declines in the futures price of ultra low sulfur diesel (ULSD) on the CME commodity exchange, as well as the wholesale prices that generally track futures prices closely. FUELS.USA, a data series in FreightWaves SONAR that measures the spread between retail and wholesale prices, came in Monday at $1.493 a gallon, down from $1.652 as recently as Feb. 4. Longer term, the FUELS.USA spread was $2.245 per gallon on Dec. 8, a level far more than the historic norm of $1 to $1.10 a gallon.

But that spread has seen wild swings in the last year following Russia’s invasion of Ukraine. The big fluctuations in futures and wholesale prices on a daily basis have been far too rapid for retailers to track. They are simply not set up or of a mindset to change prices as much as 5 cents to 10 cents per gallon — or more — multiple times per week.

As diesel futures and wholesale prices have dropped from their recent highs, retail prices, given their more leisurely pace of declines and increases, have not kept up. ULSD on CME hit a recent high of $4.339 per gallon on Oct. 27. On Monday, it settled at $2.9057, though that is off a recent low of $2.7687 recorded a week ago on Feb. 6. Between the October high and the price a week ago, the decline is more than $1.57 a gallon.

However, the DOE/EIA price is down about 90 cents since its late October high of $5.341 per gallon.

With the one-year anniversary of Russia’s invasion of Ukraine approaching, the surge in prices and subsequent decline has not yet brought pump prices, as measured by the EIA, back to pre-war levels. The benchmark posted Feb. 28, 2022, just after the invasion — too soon for pump prices to react significantly — was $4.104 a gallon, about 30 cents less than the most recent price.

It has now been one week since the EU’s two-pronged approach toward Russian exports of products such as diesel went into effect. That includes a ban on imports of Russian products by any EU countries and a price cap on the rate that can be paid by the country’s customers of $100 per barrel to be enforced by the world’s marine insurers and shipping companies heavily based in the EU, particularly the insurance companies.

A change in market conditions often can make itself evident in physical market spreads, where barges or pipeline quantities of physical product are traded as a differential to the CME diesel price. But there are no signs yet from the physical market that diesel markets are tightening as a result of the new policies impacting Russian diesel, even as the country’s officials said last week they would be cutting their output 5%.

For example, the price of physical diesel traded in New York Harbor, according to DTN Energy, was 3 cents a gallon over the CME price on Feb. 2. On Monday, it came in at 75 basis points less than the CME price, a sign of a softening market and certainly not one being hit by a tightening world market as a result of the EU policies.

However, there has been an upward trend overall in oil. Brent, the world’s crude benchmark, has moved up from a level near $80 a barrel Feb. 3 to close Monday at about $86.60. But in post-close trading Monday, the market was hit with news that the Biden administration will look to sell further crude out of the U.S. Strategic Petroleum Reserve.

The administration has already sold about 180 million barrels of oil from the SPR in reaction to higher prices and lower Russia supplies. Those sales have stopped.

However, previously approved legislation that mandated sales from the SPR as a way to raise revenue from the federal government, passed before the Russian invasion, requires sales of an additional 26 million barrels, according to a report published post-close by Bloomberg. The sales will take place between April and June, Bloomberg said.

Following the release of that report, crude fell as much as 1%, Bloomberg said.

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.