Benchmark Prices Tumble for the Sixth Consecutive Week
Retail diesel prices in the U.S. have plunged to levels not seen since the beginning of last summer, as a global supply glut continues to weigh on the market. According to the latest data from the Department of Energy’s Energy Information Administration (EIA), the weekly average retail diesel price fell 5.9 cents to $3.789 per gallon on Monday – the lowest since July 3, 2023, when it stood at $3.767.
This marks the sixth consecutive weekly decline in the price, which has now dropped a staggering 84.4 cents per gallon from its recent high of $4.633 on September 18.
Futures Prices Slide, but Retail Lags
While futures prices for ultra-low sulfur diesel (ULSD) on the CME commodity exchange have fallen about 17 cents per gallon since April 15, settling at $2.4871 on Monday, the retail price reflected in the EIA data has dropped a more significant 23 cents per gallon over the same period.
This discrepancy can be partially attributed to the typical lag between futures and retail prices. However, a significant factor is the continued weakness in physical diesel prices, which in some markets are declining faster than the benchmark CME ULSD futures.
Regional Price Disparities
Physical diesel prices, quoted on a cents-per-barrel basis for barge or pipeline delivery, are showing either flat or weak numbers, contributing to the faster decline in retail prices compared to futures.
While prices in key markets like the U.S. Gulf Coast and New York Harbor have remained relatively stable, spreads between physical barrels and CME ULSD have widened in other regions. For instance, on the Buckeye Pipeline system serving parts of the Midwest and mid-Atlantic, the spread was negative 22 cents per gallon on Monday, compared to negative 6 cents on May 7.
Similarly, in Chicago, the spread was negative 24 cents per gallon on Monday, up from negative 6.5 cents on May 6, while in Group 3 (covering several Midwestern states), the spread was negative 15.25 cents per gallon, contrasting with negative 5.5 cents on May 3.
Crude Prices Stagnant, Diesel Stuck in a Tight Range
A range of data suggests that diesel markets are either holding back any upward movement in crude prices or trading within a tight spread relative to crude.
The differential between ULSD and the global crude benchmark Brent has remained largely unchanged, fluctuating between roughly $19 and $20.50 per barrel since the start of May – well below the March-April average of about $24.30 per barrel.
Brent crude itself has essentially gone nowhere this month, settling between $82.38 and $83.88 per barrel, with Monday’s close at $83.71.
Contango Structure, but No Inventory Build
While the front structure of the ULSD market on CME has flipped into contango (where the second-month price is higher than the first-month price, incentivizing inventory builds), data so far does not show any notable increase in U.S. ULSD inventories.
According to EIA statistics, inventories have remained in the range of 106 million to 108 million barrels since the beginning of March.
Global Supply Overhang
Energy economist Philip Verleger attributes the downward pressure on product prices, including diesel, to a well-supplied global market and high interest rates discouraging stock-building.
Verleger cited increased diesel exports from the Middle East to Europe, as well as Chinese distillate exports, as factors contributing to the supply overhang. He noted that while OPEC+ producers like Saudi Arabia and the UAE are adhering to production quotas, they are shipping more refined products like diesel to Europe to maximize revenues.
Additionally, poor refining margins in China have led to an increase in allowable distillate exports, creating a “product surplus” that is weighing on prices across the Asia-Pacific region, according to reports cited by Verleger.
With global inventories ample and no significant upward pressure on crude prices, the outlook for diesel prices remains bearish in the near term, barring any unexpected supply disruptions or demand surges.
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