DOE/EIA price jumps another 40 cents, but base diesel markets plunge

The average weekly retail price released by the Department of Energy’s Energy Information Administration came in at $5.25 a gallon on Monday, a number that doesn’t tell the story of the choppy road it took to get there. to arrive.

This week’s price marks a gain of 40.1 cents per gallon. This is the second largest one-week increase in series history after last week’s gain of 74.5 cents. And since last week’s price of $4.849 per gallon was already the highest on record, this week’s $5.25 grabs that title.

The benchmark number that serves as the basis for most fuel surcharges has now increased by a total of $1.637 per gallon in the 10 consecutive weeks it has increased.

But there were market signals that this price could be a high, at least for now.

The price development of Ultra Low Sulfur Diesel on the CME Commodities Exchange, which is the first constituent on the way to the retail level, has seen insane volatility in the past few days alone, virtually entirely at the decline.

Last Tuesday, ULSD settled at $4.4373 per gallon. It was the highest one-day settlement in contract history and rose 51.58 cents per gallon that day. This upward move also marked the largest one-day increase in contract history.

A day later, with reports from Ukraine and Russia appearing to be hoping for some sort of ceasefire, ULSD fell 97.3 cents per gallon, the largest single-day drop in the history of contracts occurring just after the largest one-day increase. However, this decline was actually smaller when measured as a percentage compared to a decline when the first Gulf War began in 1990 and quickly followed the path of the United States and its allies.

Since then, prices have continued to decline, with two declines of 16.81 and 14.13 cents per gallon, respectively, sandwiched around an increase of 12.14 cents.

The end result of this move is that over the past four trading days, the ULSD on CME is down $1.161 per gallon. Monday’s settlement of $3.2763 was the lowest since March 1.

Retail is always the slowest price to react to commodity movements. There are signs that even before the drop in commodity prices of the past few days, retail trade had stopped its upward movement.

According to data from the DTS.USA data feed in FreightWaves’ SONAR, the average retail price in the United States was slightly above $5.13 for four consecutive days. That was before the commodity and wholesale price declines of the past few days had a chance to put downward pressure on retail levels.

Wholesale prices, however, move in close sympathy with movements in commodity prices. With prices falling on the CME, national average wholesale prices in the ULSDR.USA data feed in SONAR fell to $3.755 per gallon on Monday from $4.569 on Wednesday.

What caused the market to fall? Appearing on CNBC’s Squawk Box on Tuesday, Amrita Sen, founder and chief analyst at Energy Aspects, cited several reasons why oil prices have fallen more than a dollar a barrel in just a few days.

Sen said that although the focus has been on official and unofficial embargoes on Russian oil exports, “Russian oil is coming to market.” However, she added that the shipments that tanker trackers show being exported were for barrels booked before the Russian invasion of Ukraine, and are unlikely to be followed by any new oil trade.

Sen said China and India should take some embargoed Russian oil, although the precise amounts remain unclear.

Moreover, Sen said, Russian oil that comes to market by pipeline continues to do so because everything is under contract, unlike oil shipments that are offered on the open market. Russia ships about 1.2 to 1.4 million barrels a day on the Druzhba pipeline, which serves Eastern Europe and actually passes through Ukraine.

That oil continues to flow through Druzhba is not news; the line never stopped working even when the war started.

Germany, which does not get oil from the Druzhba but is instead served by crude transported by water, begins to reduce its imports of Russian oil. Reuters reported that the German Fuel and Energy Association said in response to a question: “The mineral oil industry has started to reduce imports of Russian crude oil and petroleum products, especially diesel”.

Another global development cited for the recent price drop is that China is once again facing a resurgence of COVID-19, this time mainly in the major city of Shenzhen. China is the world’s largest crude importer, and its determination to fight COVID-19 through shutdowns has always been seen by oil markets as a potential drag on demand.

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