Increases In Weekly DOE/EIA Diesel Price Hit 18 Straight; Latest Rise 7.1 Cents

The Department of Energy/Energy Information Administration average retail diesel price rose Monday for the 18th consecutive week–another record–while the commodity diesel markets Monday rode up and down on the back of the latest wild oil market swings.

According to the latest DOE/EIA number, the average retail price of diesel last week was $3.143 a gallon, an increase of 7.1 cents. 

Another move higher was expected: Average retail diesel prices from the DTS.USA data feed in SONAR rose 4.5 cents between March 1 and this past Saturday. 

Meanwhile, the national wholesale diesel price, found in the ULSDR.USA data series, also tacked on a significant upward move, rising 17.5 cents to $2.228 a gallon between last Monday and this past Saturday. 

Retail markets do not always end up capturing all wholesale moves. Markets can head lower before retail catches up to earlier wholesale increases. But the difference in the retail increase in DTS.USA and the wholesale gains in ULSDR.USA suggest there are retail increases in the pipeline, barring a significant downturn in commodity prices that would drag wholesale prices down as well. 

With the latest increase, the weekly benchmark DOE/EIA number is at the highest level it has been since it was at $3.163 on May 20, 2019. 

Wild swings in the commodity market that began Sunday evening U.S. time and continued through Monday would not have impacted the DOE/EIA price, which is produced on Mondays through the results of a survey. Commodity swings like what the market experienced do not translate into retail diesel markets that quickly.

But the movement in the markets was volatile after the Sunday news that Saudi oil facilities on its east coast in the city of Ras Tanura were hit by missiles fired by Iran-based Houthi rebels in Yemen, to Saudi Arabia's west.

According to a report in The Wall Street Journal,  the Houthis — who are locked in a civil war with the Yemeni government that has killed hundreds of  thousands — fired 10 drones and a ballistic missile at the Eastern Province, where Ras Tanura is located, and four drones and six missiles at the southern part of the country.

The result was that when trading opened late Sunday, the global Brent crude benchmark climbed from a Friday close near $68.25 a barrel to trade as high as $71.35. The U.S. benchmark crude, West Texas Intermediate, climbed from its Friday settle of $66.09 to trade as high as $67.98. 

But both markets slid back later in the day as Sunday night moved into Monday. WTI settled Monday at $65.05, down $1.04 a barrel, while Brent dropped $1.61 to $68.24.

While the attack was an escalation of Saudi-Houthi/Iran tensions, Saudi Arabia said the Ras Tanura facility was largely unscathed and operations continued normally, helping to fuel the sell-off in markets. 

Ultra low sulfur diesel on the CME commodity exchange ultimately settled down 3.55 cents at $1.908 a gallon. However, at one point during the day it did rise as high as $1.9868. 

The decline by the end of the day was greater than that of Brent, and the important Brent-diesel spread narrowed, a sign of a slightly weaker diesel market.  

Physical trading of diesel in the Gulf Coast, a key benchmark that is traded as a spread against the CME price, also was weaker, according to market sources, with the spread between the Gulf Coast price and the CME dropping more than 0.25 cents per gallon. That is a relatively significant move for one day. 

The biggest wildcard in the diesel market in the U.S. beyond the price of crude remains the restoration of refining activities on the Texas Gulf Coast, where virtually all refineries had their operations impacted to some degree by the deep freeze of mid-February. That has resulted in U.S. ULSD output dropping two weeks ago to its lowest level since 2010. 

Bloomberg reported Monday that as of Friday, seven of 18 refineries that had been impacted by the freeze to some degree were operating normally. Bloomberg also said it expects the remainder to restore operations by the end of this week. But while spreads Monday might have been relatively flat, wholesale diesel prices in Houston, according to the ULSDR.HOU data series in SONAR, showed a 14.3-cent increase between last Wednesday and Saturday, rising to $2.129 a gallon. 

Downward pressure also came from a significantly stronger U.S. dollar. Oil prices and the dollar generally move in opposite directions, with a stronger dollar enabling greater purchasing power to acquire dollar-based crude, hence the bearish move as the greenback gets stronger. 

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