On a day which signaled that war-driven price increases for now at least are going to disappear from oil markets, the benchmark diesel price used for most fuel surcharges rose.
The weekly average retail diesel price published by the Department of Energy/Energy Information Administration rose 2 cents a gallon to $3.573. The increase came after a drop last week of 7.8 cents per gallon, but the benchmark had risen the prior four weeks.
The upward move in the DOE/EIA price came on a day when the futures price of ultra low sulfur diesel (ULSD) on the CME commodity exchange posted one of the biggest declines in the past several months.
Monday’s ULSD settlement of $2.1286 a gallon marked a decline of 10.95 cents per gallon for the day’s trading. It was the largest one-day decline since a 16.9-cent slide on Dec. 1, 2023.
That Dec. 1 drop marked a 5.97% downward change. Monday’s decline was 4.89% in the ULSD price.
The most recent market low in ULSD was a settlement of $2.0538 a gallon on Sept. 10.
There was no ambiguity in markets about why oil fell so hard: Israeli attacks on Iran in retaliation for Iran’s missile launches against Israel Oct. 1 lived up to the predictions that Israel would not attack Iranian oil facilities, whether they were production sites or export facilities, nor would it attack Iranian sites that are believed to be part of Iran’s efforts to build its own nuclear weapons capability.
There were still positions in the market that would have profited had the Israeli attack hit Iranian oil targets.
A Bloomberg report Monday noted that many of the bets placed in the market that would have paid off had Iranian oil facilities been impacted were not outright positions but rather options bets that would have given the holder the right – but not the obligation – to buy oil at a certain price higher than where oil traded Monday. The West Texas Intermediate contract on the CME settled Monday at $67.38 a barrel, the lowest since Sept. 11. That was a one-day drop of $4.40.
But as Bloomberg reported, those options proved to be worthless once prices fell as the parameters of the Israeli attack took shape. “That plunge has helped contribute to a chunk of about 800,000 Brent [the world’s crude benchmark] December call options set to expire without a profit on Monday as traders’ urge to protect against a price spike evaporates,” Bloomberg reported.
With that factor out of the market at least for now, prices again had little to support them. In the Brent market, a decline of $4.63 a barrel was a drop of 6.09%. That percentage was reported to be the largest one-day decline since July 12, 2022.
A somewhat bullish voice could be heard Monday in the wake of the post-Iran attack collapse from Amrita Sen, director of research at Energy Aspects.
Sen said in an interview with CNBC that the assumptions in the supply/demand forecasts into 2025, which are almost all bearish, are relying too much on forecasts of significantly higher output from non-OPEC nations. Specifically, going forward, just as the models have been doing for months, analysts see continued big gains from the U.S., Brazil, Guyana and Canada.
But Sen said she believes that may not happen. “We’ve seen non-OPEC really really underperform, and it’s not something the media has caught on to,” she said.
Most forecasts have these nations adding 1 million barrels per day in output this year. “But guess where we are today – just above 300,000 barrels per day,” Sen said, citing the U.S. and Brazil as key reasons for that shortfall.
U.S crude production closed out 2023 at 13.308 million barrels a day, according to the monthly EIA report, which is considered more definitive than the EIA’s weekly report which comes out on Wednesdays. In July, output was 13.205 million barrels a day. That is the most recent report available as there is a two month lag between the weekly reports and the monthly numbers.
But the weekly U.S. production figure during the past two weeks has been at a record, 13.5 million barrels a day. It would not be until the monthly EIA report issued in late December that that 13.5 million-barrel-per-day figure could be supported or revised downward.
A bearish factor on the production side emerged last week, however: more output from Libya.
This was not just the return to production as a result of a recent agreement between warring factions from the east and west halves of the country that drastically cut output. It was the fact that the output is climbing beyond estimates.
The country’s National Oil Corp. last week reported a one-day output of 1.327 million barrels a day, which it said was the largest daily output in several years.
Libyan output at the end of last year was 1.18 million barrels a day, according to the International Energy Agency. By August, before the divisions in the country led to the shutdown of a significant amount of production, daily output was just under 1 million barrels, according to the IEA.
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