Oil Futures Surge As Retail Diesel Prices Decrease Again

Oil Futures Surge As Retail Diesel Prices Decrease Again

The events in Russia over the weekend gave the oil market a small boost on Monday, but the price of the standard retail diesel fell for the 19th time in the last 21 weeks.

The average retail price of diesel fuel in the U.S. dropped by 1.4 cents per gallon to $3.801, according to the Department of Energy/Energy Information Administration. 

Diesel fuel is used in most fuel fees. This means that last week’s price increase of 2.1 cents per gallon, which stopped eight straight weeks of price drops, was only temporary.

Oil Futures Prices Experience Significant Drop Amidst Failed Coup in Russia

Oil futures prices experienced a significant drop on Monday, with ultra-low sulfur diesel (ULSD) reaching a high of $2.5642 per gallon on Wednesday. However, it fell to $2.4071 by the end of the week. On June 12, it reached a low of $2.3091. 

The failed coup in Russia may have increased prices, but the overall increase of 3.17 cents a gallon to $2.4388, up 1.32%, could be seen as small.

But sellers and the data company Refinitiv Eikon have told Reuters that there have been no supply problems.

ULSD Prices Rise on CME as Brent Increases and Russia Emerges as Key Seller

The highest price for ULSD on the CME was $2.4651 per gallon, three cents higher than the previous closing price. Brent, the world oil standard, increased by half as much as diesel, with a 45-cent increase to $74.18, a 0.6% rise. 

The difference between Brent and ULSD has been between 62 and 72 cents per gallon. Russian news suggests that Russia is using crude oil to produce diesel and gasoline at a high rate, making it a key seller on the global market.

Russian Refineries Increase Oil Flow as Maintenance Season Ends, but Future Uncertain Due to Funding Cuts

As Russia’s maintenance season ends, refineries in the country have increased oil flow to their highest level in 10 weeks. In the week ending June 21, crude processing increased by 115,000 barrels per day. 

This increase is the highest since early April. However, the positive effects may not last. Russia is considering cutting support to its processing industry to fund its war in Ukraine. Some plants are working at full capacity due to funding cuts starting in September.

Rising US Natural Gas Prices Could Lead to an Increase in Diesel Prices

The price of diesel could rise if the US natural gas prices rise rapidly. The CME Henry Hub contract settled at $2.791 per million British Thermal Units (mmBtus) on June 1, 2023. This is more than the $2.15. 

Last year, when natural gas prices reached $10/mmBtus, many diesel users switched to natural gas. The rising natural gas price since the July contract ends this week is attributed to filling short positions, as traders with high short positions bid higher prices to pay their short positions.

The bottom line

Retail fuel costs have recently gone down, which could help the transportation industry. The price of gasoline is a big part of the cost of operations, and a rise in fuel prices could make shipping more expensive and raise the prices of the goods that are sent. 

A rise in the cost of fuel, which usually makes up 30–40% of the freight rate, could have a ripple effect that raises not only the cost of shipping but also the end cost to the customer. 

So, a drop in fuel prices could help the shipping industry by making delivery cheaper. But this is just one of many factors that could affect the shipping industry.

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