Here are three key takeaways for fuel jobbers/petroleum marketers:
- Recent Diesel Price Movements: The Department of Energy/Energy Information Administration’s average weekly retail diesel price decreased by 5.1 cents per gallon in the latest update, following a significant increase of 21 cents two weeks prior and a stable price last week. This price serves as the basis for most fuel surcharges.
- Market Trends and Stability: Oil prices have shown relative stability, with Brent crude trading within a tight range. However, ultra-low sulfur diesel (ULSD) prices on the CME commodity exchange have exhibited a downward trend, with some recent recovery. Regional diesel markets in the U.S. have seen varying degrees of strength, with some areas experiencing price improvements.
- Potential Market Influences: Tensions in the Middle East and possible diversions of oil shipments away from the Red Sea/Suez Canal route could impact oil prices by tightening supply. Additionally, a limited supply of new tankers in 2024 could lead to increased demand for existing vessels, potentially affecting transportation costs and market dynamics.
Recent weekly moves have been much smaller than during preceding long run of declines…
Following a notable increase of 21 cents per gallon two weeks ago and a stable price last week, the Department of Energy/Energy Information Administration’s average weekly retail diesel price experienced a decrease in its latest update. The drop of 5.1 cents per gallon was unexpectedly large, given that other indicators had suggested a more modest decline. This price is significant as it serves as the basis for most fuel surcharges.
Recent weeks have seen relatively minor price fluctuations, with the exception of the significant 21-cent increase, which is a stark contrast to the previous volatility. Since December 25, when there was a 2-cent increase per gallon, the changes have ranged from a decrease of 4.8 cents to an increase of 3.5 cents per gallon, excluding the 21-cent jump. This week’s 5.1-cent decrease is larger than these other recent changes.
Before this period, there was a long stretch of mostly negative price movements, with changes regularly exceeding 5 cents per gallon and occasionally reaching 9 or 10 cents.
Oil prices have been relatively stable overall. Since Brent crude, the global benchmark, surpassed $82 per barrel on February 9, the daily settlement price has fluctuated between $81.50 and $83.47 per barrel, indicating a tight trading range.
The trading range for ultra-low sulfur diesel (ULSD) on the CME commodity exchange has been broader but with a downward trend. After briefly exceeding $2.90 per gallon on February 9 and 12, the price trended downward, settling at $2.6897 per gallon before rebounding by 7.3 cents per gallon.
Despite a general downward trend in the futures market, physical diesel markets in the U.S. have shown strength. Diesel is traded in various regional markets at a differential to the CME ULSD price, with delivery via barge or pipeline.
Recent trends in these markets have reversed from a downward trend to a strengthening one. For example, diesel on the Buckeye pipeline shifted from being 20 cents below the CME ULSD price to 8 cents below. Similarly, the Chicago market improved from minus 25 cents to minus 14 cents per gallon, and the Gulf Coast market moved from minus 0.825 cents to minus 4.75 cents per gallon. However, the Los Angeles market weakened from plus 10 cents to plus 2 cents per gallon.
The oil market has not seen significant news to drive substantial price movements. One notable story was Goldman Sachs raising its Brent forecast for this summer by $2 to $87 per barrel, citing the expectation that OPEC+ will maintain its production cuts, which would keep the market in a moderate deficit. Goldman’s forecast for 2025 is an average of $80 per barrel.
Tensions in the Middle East could potentially drive oil prices higher, particularly if oil shipments are diverted away from the Red Sea/Suez Canal route. This potential impact has not been significant so far, but longer transit times could tighten supply by keeping oil off the market for extended periods. Bloomberg highlighted that this situation could increase demand for tankers, with little new supply expected this year. In fact, only two new supertankers are anticipated to join the fleet in 2024, the fewest additions in nearly four decades and about 90% below the average for this millennium. This lack of new capacity, coupled with the avoidance of the southern Red Sea, is starting to affect the market, leading to spikes in rates and longer voyage durations.
