DOE/EIA diesel price edges down even as broader markets fall faster

So far, ULSD is not falling as much as the decline in crude. The spread between global crude benchmark Brent and ULSD dropped Monday to 39.83 cents a gallon. It’s down about 1 cent since Thursday, but had been as low as just over 35 cents on July 19. 

That relative strength against crude may be difficult to maintain, which is good news for diesel consumers. Bloomberg reported that one of the factors that brought the market lower on news of the delta variant was data on Chinese demand. One part of that data: Airline seat capacity is down more than 30% in the past week.

That has the potential to particularly impact diesel. Jet fuel, like diesel, is a distillate. A decline in demand for jet fuel inevitably spills into the diesel market, as refiners that are facing a softness in jet fuel demand shift their distillate pool over to diesel in response. That is one of the reasons why when news of COVID-19 first hit markets in January 2020, it was diesel prices that took the first sharp downward moves on the assumption that air travel would be the first victim of a pandemic.

Oil markets are also being impacted by the rise in the U.S. dollar. Dollar moves generally impact oil prices inversely, so a rising dollar pushes down the price of oil, since oil is priced in dollars. 

Although retail prices have been slow to react to the general decline in oil prices, that is not the case with wholesale diesel prices. Wholesale price moves are tied closely to movements in the commodity markets. Since Aug. 2, the average price of wholesale ULSD has declined almost 10 cents a gallon, according to the ULSDR.USA data feed in SONAR, FreightWaves’ data dashboard.

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