Not since October 2021 has the benchmark diesel price used for most fuel surcharges been this low.
With a decline of 8.2 cents a gallon from the prior week’s average retail diesel price, the price fell to $3.458 a gallon. That drop, posted by the Department of Energy/Energy Information Administration, was the largest in almost a year, going back to a 9.3-cent decline Dec. 21, 2023, and the outright price was the lowest since a posting of $3.477 on Oct. 4, 2021, several months before the Russian invasion of Ukraine that sent prices on a wild ride that at one point lifted the average number well above $5 a gallon. (On June 20, 2022, the DOE/EIA price hit $5.81.)
The latest decline in the benchmark comes as ultra low sulfur diesel prices on the CME commodity exchange have been sliding consistently overall, though with bursts of an occasional increase in the middle of that fall.
ULSD settled at $2.3042 a gallon Nov. 5, which was Election Day. A quick post-election decline took the ULSD settlement to $2.1709 on Nov. 15. There were spurts higher since then; the price settled at $2.2749 a gallon on Nov. 22.
But the trend since that has been decidedly lower. The $2.1326 settlement Friday was the lowest since Oct. 28. A rally Monday added just over 5 cents per gallon to the price of ULSD, with a settlement of $2.1835. But that was seen as a reaction to a general concern about geopolitical tensions following the fall of the Assad regime in Syria and news about China’s plans to further stimulate the economy, rather than any change in oil market fundamentals.
While there is no immediate short-term bearish news, there also are essentially no conditions that any bulls can point to that would support an argument of higher prices on the horizon.
That’s the key driver behind the decision last week by the OPEC+ group to delay and stretch out its plans to begin rolling back its production cuts that in the case of some countries can be traced back to 2023.
The rollback of the production cuts on a graduated basis was to begin in December. But the OPEC+ group, which consists of OPEC and a group of non-OPEC oil exporters nominally led by Russia, decided instead to delay increasing production until April. It also set a new calendar for the rollback by stretching it out to the end of 2026. They were originally planned to be implemented by the end of 2025.
Tariffs, China and demand: uncertainties
Helima Croft, managing director and global head of commodity strategy at RBC Capital Markets, said in an interview with CNBC on Monday that there are significant areas of uncertainty in global markets now. She cited tariffs, Iranian sanctions under a Trump regime and the demand forecast in general as some of those questions hovering over the market.
“Weak Chinese demand has really been a problem for the oil market,” Croft said. “This year, I think people will be watching very closely to see what the tariff impact will be on the supply side.”
But Croft’s own forecasts are notably bearish. The RBC forecast, circulated among oil followers Monday on X, showed an average price of global crude benchmark Brent of $68.50 a barrel, sliding to $63 by the fourth quarter and an average $65.50 for 2025. The 2026 average is $62.25.
Brent settled Monday at $72.14 a barrel.
Moves by Saudi Arabia
One market player that is clearly bearish is Saudi Arabia. According to Bloomberg, Saudi Arabia has notified its customers in Asia that it is cutting its price formula for sales into that region by 80 cents a barrel.
Arab Light, the primary Saudi grade, will be sold at a 90-cents-a-barrel premium to the benchmark set by the spot market prices of Oman and Dubai crudes beginning in January. The premium for December was $1.70 a barrel.
While forecasts in the market did assume there would be a decline in the premium, according to a report from Bloomberg, the expectation was that the premium would be $1 a barrel. The additional 10-cent reduction is considered a sign of the Saudi view of the market.
Saudi prices are set as a benchmark to the price of crude grades Oman and Dubai. If the outright price of the benchmark rises, customers will pay more. But the spread is closely watched as a signal of how Saudi Arabia sees the market.
The spread was expected to drop to $1 a barrel, according to Bloomberg. Going an additional 20 cents per barrel below that is therefore viewed as a bearish signal.
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