Weekly DOE/EIA diesel price cracks $3/gallon mark in 17th straight increase

It took a little less than 14 months but the price has recovered its pandemic-fueled decline. The first price reported in 2020 was $3.079 a gallon. A week later, prior to the first reports of a previously unknown virus coming out of China, the price dropped slightly to $3.064 a gallon. But as news of the virus started seeping out by mid-January, it was diesel prices and their tie to jet fuel that made it the market to first take it on the chin from that development. The price reported Jan. 20 of last year was $3.037 a gallon. 

Oil markets have been rising for months but have started to pull back. On Monday, even as equity markets soared, the price of U.S. benchmark crude West Texas Intermediate fell 86 cents to settle at $60.64 a barrel on the CME commodity exchange. That’s down almost $3 a barrel in just two trading days.

The decline in diesel markets has been even larger percentage-wise, with the contract for April ultra low sulfur diesel dropping to a settlement of $1.8192 a gallon Monday from a recent high last week of $1.9066. 

Diesel’s decline at a faster rate than crude could be seen as puzzling. Questions remain about the extent of refining outages that linger as a result of the Texas cold snap two weeks ago. S&P Global Platts reported late last week that the “majority” of Texas’ refineries are “in the process of restarting,” with midmonth seen as a return date for them. But that is still a significant amount of lost capacity that by the middle of the month will be three to four weeks in duration, and come at a time when inventories are not seen as excessive, with market spreads suggesting some tightness.

A key market to watch remains the wholesale price of ultra low sulfur diesel in Houston. Tight supplies in that key market as a result of refinery outages will be reflected in that price quickly.  That price on Monday, according to the ULSDR.HOU data series in SONAR, is down 4.7 cents a gallon from its price last Friday of $2.077 a gallon, a level not that far off from the drop in ULSD prices on CME through Friday. That Friday settlement — rather than the trading on Monday — would be the basis for Monday’s wholesale price. Given that, the Houston wholesale price is not swinging far from the CME price at this point. 

But it is the crude market that will have the biggest say on the future direction of prices. A meeting of the OPEC + group — the OPEC nations and a group of non-OPEC oil exporters led by Russia — will meet Thursday. Russia is seen as wanting to put additional crude barrels on to a market that in terms of global crude benchmark Brent has risen almost $45 a barrel from its
April low. Saudi Arabia is recommending a more cautious approach, according to media reports about the upcoming virtual gathering. 

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