Diesel benchmark goes up a bit, again, as stability continues

A fourth consecutive week of a small move in the benchmark diesel price used for most fuel surcharges points to a market that could be either “steady as she goes” or in a state of torpor.

The Department of Energy/Energy Information Administration average weekly retail diesel price rose 0.2 cents a gallon, to $3.697. The previous three weeks had seen increases of 0.1 cents, 0.5 cents and 1.2 cents per gallon to tack on  3.8 cents a gallon during that time. 

The price is significantly higher than it was right before Christmas, when the Dec. 23 benchmark was set at $3.476 a gallon. That’s a 22.1-cent-per-gallon increase since then. 

But most of it came in the first half of January when the outgoing Biden administration announced a new package of sanctions against Russian shipping of oil. That sent the settlement price of ultra low sulfur diesel (ULSD) on the CME commodity exchange to a high of $2.621 a gallon Jan. 17.

And while prices have drifted down since then to a settlement Monday of $2.4358, retail prices have not fallen anywhere near as much.    

Compared to some of the swings in the early days of the market reaction to Russia’s invasion of Ukraine three years ago, the stability in markets is striking.

On Wednesday, Bloomberg published an article under the headline of “Trump’s Policy Deluge Is Causing Paralysis in the Oil Market.”

The article quoted a report from Standard Chartered Bank that said oil “is showing signs of disorientation in the face of the sheer volume of new policy stances. Faced with so much information and the realization that a single social media post could move the market significantly in either direction at any time, many traders have responded by reducing their risk exposure.”

On Thursday, at least in the diesel market, it looked like maybe traders were finding a different direction than just the status quo. (Other petroleum markets that day significantly lagged the upward movement in diesel.)

The price of ULSD rose 4.69 cents a gallon Monday to settle at $2.5034. A week earlier, the market had risen and fallen more than 6.25 cents a gallon on back-to-back days, for a net impact of just about zero.

Was Thursday’s move the harbinger of a change in the market that might have staying power? 

Not so fast: A day later, ULSD fell 7.11 cents to bring the price not that far above where it stood on Feb. 7.

Monday’s small gain left ULSD firmly in the range of $2.43-$2.46.5 a gallon, where it has found itself now for nine of the past 11 settlements. 

The minor moves leave analysts grasping for whatever small factor in the market might have moved prices up or down on any given day.

Monday, to go along with the small increase in the ULSD price, Brent, the world crude benchmark, rose 35 cents to $74.78 a barrel, for an increase of 0.47%.

Reaching for some reason why the market moved at all, news agencies cited some new sanctions on Iranian shipping as a possible reason. 

But going back to the thesis of the Bloomberg article, with no obvious large imbalances in the oil markets, and the trading paralysis cited by Bloomberg, there just isn’t a lot of reason for prices to move significantly up or down … until there suddenly is. 

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