Diesel Futures Plunge Monday While Benchmark Price Climbs

Diesel futures experienced a dramatic decline on Monday, yet the price at the pump continues to rise. The more than 55 cents per gallon decrease was unprecedented. While FreightWaves lacks a comprehensive historical record, this plunge in ultra low sulfur diesel (ULSD) on the CME commodity exchange appears to be the largest single-day drop since the contract's inception as a heating oil trading platform in 1979. Both diesel and heating oil are similar distillates. Previous price reductions during the COVID-19 pandemic in 2020 were severe but spread over a longer timeframe, whereas the swift drop in prices seen during the 1991 Gulf War came from a much lower price base, making a 55 cts/g decline nearly unfathomable. However, changes in futures prices typically do not instantly reflect at gas stations. This was evident in recent statistics. The average weekly retail price for diesel, as reported by the Department of Energy/Energy Information Administration (EIA), rose 30.4 cts/g to $5.375/g. This marks the tenth week in a row of increasing prices. Over the last three weeks, following the onset of military actions in the Middle East, the increases have tallied up to 96.2, 21.2, and now 30.4 cts/g, totaling an accumulation of $1.47/g. Over the past ten weeks, these price hikes have pushed the cost up by $1.916/g, now standing at the highest level since $5.31/g in October 2022, when oil prices soared due to the combined effects of the Russia-Ukraine conflict and heightened global inflation. The peak recorded price in the DOE/EIA series remains $5.81/g from June 20, 2022. A troubling figure regarding prices at the pump is the AAA average daily retail price, which has risen for 24 consecutive days since March 1, reaching $5.345/g—up 6 cts/g from Monday and $1.587/g since February 28. Following the substantial decline in ULSD witnessed on CME, a slight recovery was observed on Tuesday. By around 11 a.m., ULSD rebounded to $4.2779/g, recovering nearly 40% of Monday's drop, with peaks reaching as high as 52% during the trading day. One pressing concern for diesel consumers is the potential for supply disruptions. Unfortunately, a significant disruption is currently affecting the U.S. market. Reports indicate that Valero Energy (NYSE: VLO) experienced a fire in a diesel hydrotreater at its 380,000 barrels per day refinery located in Port Arthur, Texas. This facility has reportedly been shut down, leaving a critical gap in the fuel supply chain, as a diesel hydrotreater is responsible for removing sulfur and other impurities from diesel fuel. Interestingly, despite rising diesel prices, larger fleets might benefit from the corresponding increases in fuel surcharges. According to research from Citi’s transportation team, a report recently highlighted the advantages that fuel surcharges could provide to larger trucking companies in mitigating medium-term impacts on transportation costs. The report noted that the advanced fuel surcharge mechanisms might give larger carriers an edge over their smaller counterparts. During a recent interview with CNBC, Secretary of Energy Chris Wright discussed potential federal measures to ease soaring gasoline and diesel prices, beyond the Strategic Petroleum Reserve's oil release. While specifics were scarce, he mentioned exploring options related to refinery efficiencies. For consumers, the key takeaway remains that global oil supplies are down by at least 10 million barrels per day in a market that averages around 104 million barrels per day. The International Energy Agency has termed this the largest supply shock that global markets have ever faced. As a report from Energy Aspects, a consultancy based in London, stated, the current situation reflects not just disrupted or delayed flows, but a permanent loss in supply. They predict that the remainder of 2026 will be crucial in compensating for lost supply through enhanced refinery operations, otherwise, prices may have to escalate further to reduce demand significantly.

Source: https://finance.yahoo.com/markets/commodities/articles/big-drop-diesel-futures-monday-154320331.html