With diesel prices in the futures market heading lower after an earlier increase that at one point had lifted levels by 35 cents a gallon, retail prices are now trending lower as well.
The weekly Department of Energy/Energy Information Administration average retail diesel price fell 4.7 cents Monday to $3.779 a gallon. It’s the second consecutive decrease after four weeks of increases.
Looking at the longer-term picture, the DOE/EIA price that is the basis for most fuel surcharges is down 11 of the past 15 weeks. Since it began a nine-week decline in mid-April from the recent high of $4.061 a gallon, it is down 28.2 cents.
Oil markets are under a variety of pressures, with analysts reaching for various explanations for the decline that on Monday took the price of West Texas Intermediate crude to a settlement below $80 a barrel – $79.78 – for the first time since June 14. The recent high settlement was $83.88 a barrel on July 3.
Those pressures yield a grab bag of reasons put forth by analysts: a Trump presidency is likely to see increased U.S. production of oil, which is bearish (though U.S. output now is at a record level under the Biden administration); demand signals remain weak; Chinese demand in particular is growing slowly; OPEC+ has been cutting production and has likely created a supply/demand imbalance that should be bullish but not by a large amount; the possibility that clashes between Israel and the Houthi rebels, who are backed by Iran, could erupt into a wider war.
One area of the country that is in danger of seeing diesel prices move higher at a rate more than the rest of the country is the Midwest, which keys off the spot physical price of diesel in Chicago.
The Joliet, Illinois, refinery operated by ExxonMobil (NYSE: XOM) stopped operations last week following a power outage caused by a storm. The precise date of a return remains unclear.
Reaction to that can be seen in the spread between physical ultra low sulfur diesel in Chicago, and the ULSD price on CME was negative 21 cents a gallon on July 15, with the CME price higher.
But with the interruption at Joliet, DTN data shows that spread now at plus 4.5 cents a gallon, a swing of more than 25 cents in just five trading days.
The DOE/EIA regional retail diesel price is not yet showing impact from that movement. The Midwest price released Monday showed a decline of 1.3 cents a gallon compared to the national average of 4.7 cents, but that sort of difference would not be considered notable any other time.
But the wholesale Chicago market reacted quickly. Wholesale ULSD prices in Chicago reported in SONAR under the ULSDR.CHI code, based on data from DTN, show they shot up from $2.39 a gallon July 18 to $2.59 two days later. They have since retreated to $2.50.
The increase in wholesale prices has impacted gasoline more than diesel. Tom Kloza of OPIS reported Monday that the physical market spread between the CME gasoline price, which trades as an intermediate product known as RBOB, has risen to $1 a gallon, an enormous amount.
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