A week ago, even as the Department of Energy/Energy Information Administration average weekly retail diesel price posted its fifth consecutive decline, it appeared that the downward march was about to come to an end.
War drums were beating between Israel and Iran on Aug. 12. Unlike earlier combatants in the Middle East such as the Houthis and the Palestinians, as well as the Israelis, the Iranians are significant crude producers, with output of about 3.2 million barrels a day.
Fast forward a week and the reality is the sharp increase of Aug. 12 – up 6.68 cents a gallon on the day to bring the settlement to more than $2.40 – did not have legs as the shooting war did not start.
The result is that the price of ultra low sulfur diesel (ULSD) on the CME commodity exchange, after settling Aug. 12 at $2.4065 a gallon, has fallen sharply since then. It settled Monday at $2.2635, down well over 11 cents a gallon in just two trading days. The Monday settlement was the lowest in 2024 and is the lowest since May 31, 2023.
At the pump, the outcome was not a surprise: another decline. The weekly DOE/EIA price released Monday was $3.688 per gallon, a decline of 1.6 cents from the prior week. It’s the second-lowest price posted this year, with only the $3.658 per gallon of June 10 lower.
The drop in ULSD was just one of several key oil prices Monday that tumbled. RBOB gasoline, an intermediate product that is the proxy for gasoline trading, dropped just over 2%; Brent crude fell 2.54%; and West Texas Intermediate crude fell almost 3%.
The 52-week high in Brent was $96.55 a barrel on Sept. 27; the price is down more than 19.5% since then.
With no outright military forces involved in head-to-head combat, the fear of war as a bullish factor has largely disappeared from the market, according to various analyst comments.
Instead, they are falling back on the factors they have been discussing for weeks as oil prices have declined: weak demand in China and to a lesser degree the U.S., and supply gains in countries such as the U.S. and Guyana that are offsetting the reductions in OPEC+ nations. (But as was noted last week, those cuts have not been enough to keep OPEC+ from producing the most crude in July that the group has supplied in many months.)
Demand weakness was the first market factor addressed last week by the International Energy Agency in its monthly report.
Fourth quarter year-on-year demand was up just 870,000 barrels a day in the second quarter, the IEA said. Any figure less than 1 million barrels a day is considered particularly weak.
“Contraction in China [limited] gains,” the IEA said.
Looking ahead, the IEA sees a demand increase of less than 1 million barrels a day for full-year 2024 and into 2025. That number is “far slower than last year’s 2.1 million b/d growth as comparatively lackluster macroeconomic drivers come to the fore,” the IEA said.
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