After months of volatility, the diesel market going into Tuesday appeared to have calmed down, at least for now.
The day also featured the release of the weekly benchmark diesel price from the Department of Energy/Energy Information Administration that is used for most fuel surcharges. After a big one-day increase last week in the price of ultra low sulfur diesel traded on the CME commodity exchange, the DOE/EIA price followed suit, rising 9.7 cents/gallon this week to $6.276/g.
The price is effective Monday but released Tuesday.
This week’s DOE/EIA price is still about 25 cts/g less than the all-time high of $6.529/g, set on September 22. There had been three weeks of declines since that day before this week’s increase.
Over in the futures market, ultra low sulfur diesel (ULSD) on the CME commodity exchange during the last few days had hit something of a lull.
After the big increase of more than 21 cts/g on Tuesday, October 13, which was a reaction primarily to the market realization that short-term steps like the Trump administration diesel deal with Russia were going to have limited to no impact, the ULSD market at approximately 10:30 a.m. EDT Tuesday was not far from where it settled on October 13.
The 10/13 settle was $4.9344/g. Mid-morning Tuesday, ULSD was at $4.9457/g.
And then a quick move downward
But it didn’t take long for volatility to return. Soon after those numbers were recorded, oil prices took a sharp move to the downside.
The reason? What multiple news outlets said were “unconfirmed” reports that Qatar and Pakistan together had proposed to kick start new talks aimed at ending the Iran war.
Those reports actually circulated Monday. They seemed to give a new downward push to oil markets Tuesday.
The moves were a testament to a market that is so on edge that even unconfirmed reports that two nations who aren’t directly involved in the Middle East conflict were talking about trying to get a peace process going was enough to push prices lower.
Most of the external news that might impact markets in the last week had increasingly been discounted by markets.
There have not been enough differing news reports to suggest either an increasing or decreasing amount of oil coming out of the Strait of Hormuz.
As noted, the Russian diesel plan, while politically controversial in the U.S., is not seen as providing any sort of significant alteration to the supply/demand balance.
Crack spread normalizes
Even the crack spread between Brent and ULSD has settled into a relatively narrow range. A comparison of first month Brent versus second month ULSD on CME has mostly been in a range of 83 to 88 cts/gallon for about a month, with the occasional pop over 90 cts/g. That relatively stability is mostly a sign that the Brent market and ULSD’s relationship is still one of diesel stronger than historic differentials, but where the spread has stopped blowing out.
One development that shouldn’t have an impact on prices: a lockout at the Phillips 66 Bayway refiner in New Jersey.
According to news reports, Phillips 66 locked out members of the Teamsters Monday afternoon following the expiration of their contract.
Operations at the refinery are said to be continuing normally. Unlike a lockout or strike at something like an automobile plant, a refinery can continue to run normally for an indeterminate time before the lack of a work force impacts operations.
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