The second-biggest decline in the benchmark weekly diesel price from the Department of Energy took the number down 21.3 cents per gallon, to $4.754.
A decline of that magnitude has only been exceeded once in the almost 29-year history of the DOE’s Energy Information Administration publishing a weekly average retail diesel price. That occurred in October 2008, when the collapse a month earlier of Lehman Brothers was roiling global markets, kicking off the global financial crisis. The price fell 21.6 cents for the number posted Oct. 13 of that year.
This week’s price is the lowest since March 7 of this year. Since the recent high price set on Oct. 24, the DOE/EIA diesel price is down 58.4 cents a gallon.
Retail prices inevitably lag changes in futures and wholesale prices, but the lag on the current steep drop has been historic. Even with the recent drop in retail prices, the FUELS.USA data series in SONAR has continued to rise. FUELS.USA measures the spread between the average retail price and the average wholesale price and historically has been near $1-$1.10 a gallon. A week ago it was at about $1.91 a gallon. Today, it came in at $2.18.
The ultra low sulfur diesel (ULSD) price on the CME commodity exchange between Nov. 3 and last Friday fell about $1.20 a gallon. However, on Monday it climbed 17.21 cents, its biggest one-day gain since early October. After settling Thursday at $2.7937 a gallon, the price rose Monday to $2.9658.
Recent declines in the price of ULSD on the CME have been fueled by a combination of declining demand and growing inventories.
The weekly EIA report contains demand data called Product Supplied. It does not break out diesel, but a category called distillate, based on consumption patterns, is about 85% to 90% ULSD. Product supplied for distillate was 4.257 million barrels a day in the week ending Oct. 28. In the week ending Dec. 2, the most recent report available, it was down to 3.55 million barrels a day.
Inventories, a key factor in driving the price above $5 at the pump just a few weeks and months ago, have recovered on the back not only of decreased demand but also refinery operations ramping up to take advantage of strong diesel prices. Stocks of ULSD stood at 95.8 million barrels in that week ending Oct. 28. They rose to just under 108 million barrels in the most recent weekly EIA report.
That in turn has been helped by blistering U.S. refinery operating rates of just over 95% in the two weeks ending Dec. 2, according to EIA data.
Ironically, the big drop in the EIA price, used as the benchmark for most diesel surcharges, was announced on the day that markets took a big upward move after its recent declines.
Two key factors helped push the price up by 17.21 cents a gallon Monday, to a settlement of $2.9658 a gallon. First, the Keystone Pipeline (which has been operating for years, not to be confused with its better-known sister pipeline, the Keystone XL, whose construction has been blocked by the Biden administration) has suffered a significant leak and shut down.
The pipeline carries 610,000 barrels a day. The leak is in northeast Kansas and its size is considered significant.
While crude can be rerouted off a pipeline and on to rail cars, that process takes time and the shutdown may impact supplies to refineries. Like the Keystone XL was supposed to do, Keystone takes crude from Canada and some from production in the U.S. and brings it to the U.S. Midcontinent where it can also be sent on to the U.S. Gulf Coast refining system.
Cold weather is another factor and ULSD on Monday rose more than the increase in crude. The 17.21-cent jump in ULSD Monday was a 6.16% increase. But crude benchmarks were up just between 2.15% and 2.5%.
The market reaction to forecasts of more cold winter weather could also be seen in the settlement price of natural gas at the Louisiana Henry Hub delivery point. Natural gas climbed 34.2 cents per thousand cubic feet Monday, an increase of 5.19%.