Diesel Fuel Prices

OKCHunter

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I’ve been paying around $4.79 / gal in OKC for the last month or so. I noticed this week prices have jumped to $5.29 / gal at the places I frequent.
 

Jon3830

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5.29 in sapulpa and tulsa, I am about to park the TDI and start driving the gas car again because it might actually be cheaper now.
 

SlugSlinger

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These diesel prices will just escalate the inflation we are just now feeling, even though it started a year and a half ago. "Experts are saying it could hit $6 per gallon.

Futures are at all time highs.
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The World Is Facing A Critical Diesel Shortage​

By Irina Slav - Mar 15, 2022, 3:00 PM CDT
  • Kemp: diesel fuel stocks in Europe are at their lowest since 2008.
  • Russia is a major supplier of diesel, meaning Western sanctions for its invasion of Ukraine are affecting these supplies too.
  • A further rise in diesel prices is expected as production still has to catch up.
A crude oil shortage is invariably bad news for those that consume oil products. But when it comes to these products, a diesel shortage has the potential to be even more devastating than a crude shortage. Reuters' Rowena Edwards reported in early February that the supply tightness in crude oil, gas, and coal was beginning to spread to oil products, most notably middle distillates, the most popular among which is diesel fuel.

The fuel, whose biggest market is freight transport, got hit severely during the pandemic lockdowns as transport rates declined. After the end of the lockdowns, however, as economies began to recover from the worst of the pandemic, transport picked up, and diesel fuel demand jumped. Yet production still has to catch up.

Reuters' John Kemp reported this week that diesel fuel stocks in Europe are at their lowest since 2008, and 8 percent—or 35 million barrels—lower than the five-year average for this time of the year.

In the United States, the situation is graver still. There, diesel fuel inventories are 21 percent lower than the pre-pandemic five-year seasonal average, which translates into 30 million barrels.

In Singapore, a global energy trade hub, diesel fuel inventories are 4 million barrels below the seasonal five-year average from before the pandemic.

Related: Mission Impossible: Can Biden Bring Oil Prices Down?

What is perhaps worse, however, is that over the past 12 months, the combined diesel fuel inventories in the U.S., Europe, and Singapore, have shed a combined 110 million barrels that have yet to be replaced, Kemp noted.

On top of all this, Russia is a major supplier of diesel, meaning Western sanctions for its invasion of Ukraine are affecting these supplies too. With the market increasingly tight, Shell and BP have shied away from offering any diesel fuel cargos on the German market for two weeks, Reuters reported last week, for fear of shortages.

In the UK, meanwhile, the Daily Mail cited analysts as warning that the government may need to resort to diesel fuel rationing from next month because of the state of the market and the ban on Russian oil imports, which include diesel fuel. Russia supplied a third of the UK's imported diesel before the ban.

"Risks of energy rationing and ultimately a recession are growing by the day - something most policymakers seem to be ignoring or not grasping right now.

'If Russian oil is not integrated back into the market within the next few weeks, we are at a real risk of having to ration crude and products by the summer," the Daily Mail report quoted an unnamed spokesman for consultancy Energy Aspects as saying.

Back in February, Morgan Stanley recalled a situation in 2008, when diesel fuel prices reached $180 per barrel, while crude oil was flirting with $140. And there wasn't a war in 2008.

"A repeat of that is not our base case, but it is notable that diesel prices have been tracking the 2007-08 period closely in recent months," the bank's analysts said, as quoted by Reuters' Edwards, adding they expected crude to reach $100 per barrel in the second half of the year. Of course, both Brent and WTI reached that only days after this forecast was made.

A tight supply situation invariably pushes prices higher, which cannot be good news in an environment of persistently high inflation coupled with soaring energy prices that keep on feeding that inflation.

Diesel, it seems, is turning into more kindling for consumer prices amid the Ukraine war and the sanctions. And even diesel fuel production growth may not help, according to Reuters' Kemp. It would only move the shortage from diesel fuel to crude, he said in his latest column.
 

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Benchmark diesel price hits all-time record; market signaling it isn’t done​

With squeezed May contract off the board, focus turns to June, which rose sharply Monday

On the day the Department of Energy/Energy Information Administration benchmark diesel price hit its all-time high, the futures market plowed ahead with a significant increase, signaling that the upward moves may not be done.

An increase of 34.9 cents a gallon brought the DOE/EIA average weekly retail price up to $5.509 a gallon, effective Monday. That is more than 25 cents higher than the previous record of $5.25 a gallon, set March 25.

It may be small comfort but the current DOE/EIA price is nowhere near the highest inflation-adjusted price. When crude hit its all-time high above $145 a barrel in early July 2008, the DOE/EIA price peaked at $4.764 a gallon on July 14. Adjusted for inflation, that is roughly $6.30 a gallon. Assuming truck mileage today is far superior to mileage then, and the reality, as painful as it is, is that the trucking industry has faced a more formidable set of prices than what it is dealing with now.

But that doesn’t take away from the other negative news in the diesel market Monday.

The May contract for ultra low sulfur diesel on the CME commodity exchange went off the board Friday after going through a tremendous squeeze between April 25 and Thursday. The squeeze developed as traders with short positions — a bet that prices would fall — found themselves with a need to cover that short position in a market that most definitely was not falling. A trader with a short position that didn’t get out of that trade before the May contract expired on Friday would need to find physical diesel to deliver in New York Harbor to complete the trade, which is why most trades are completed without physical delivery.

The result was that the May contract rose from a settlement just under $3.94 a gallon on April 22 to a settlement above $5.13 a gallon on Thursday. It then fell more than 35 cents on Friday as the squeeze eased, which is the way most squeezes conclude.


The June contract, which became the front month contract Monday, was rising at the same time, but at nowhere near the rate that the May contract was soaring. That led to the question: How much of the increase in June barrels was in sympathy to what was going on in May, and how much was tightness in June?

The answer is in: June was climbing all by itself and didn’t need any help. June barrels of ULSD, which are now the front month contract, climbed 18.77 cents a gallon Monday to settle at $4.2049 a gallon, an increase of 4.67%. If last week’s May settlements are thrown out as a function of an end-of-contract squeeze, the June settlement Monday was the second-highest in the history of the contract.

Significantly, the percentage increase was far more than for other contracts. West Texas Intermediate crude was up 0.46%; Brent crude, the global benchmark, rose 0.41%; and RBOB gasoline, an unfinished gasoline blendstock, climbed 1.09%.

It continued a trend that has seen diesel continue to move upward at a faster rate than other petroleum products. At the Monday settlement, a barrel of ULSD was worth about $70 more than a barrel of Brent. At the start of the year, it was worth about $16 more than Brent.

The increase in the DOE/EIA price of roughly 35 cents a gallon suggests retail prices were doing a dance as they were buffeted by several factors. Retail prices, per the FUELS.USA data series in SONAR, already were less than the normal range of a $1- to $1.05-a-gallon premium over wholesale prices (though the spread has been so volatile that normal is a relative term these days). Wholesale prices nationally rose approximately 52 cents between Monday and Saturday, suggesting that the oil companies setting those prices were caught between the soaring May contract that would normally be the primary number for determining wholesale levels, and the more restrained prices in June.

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Diesel’s strength has been exacerbated by the fact that the delivery point for the CME ULSD contract is New York Harbor, and inventories of ULSD on the East Coast, known as PADD 1, are far below normal levels.


Last week’s weekly EIA inventory report had stocks in PADD 1 at 22.5 million barrels. A year ago in the third week of April, they were 39.3 million barrels. In 2019, the last pre-pandemic year, they were 30.7 million barrels in the third week of April. Inventories have not been this low since early 2015, when consumption was less than it is today.
 
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