The benchmark diesel price used for most fuel surcharges rose again this week, but by a relatively small amount compared to previous weeks. The Department of Energy/Energy Information Administration average weekly retail ultra low sulfur diesel (ULSD) price increased by 2.6 cents/gallon to $5.401/g. This marks the 11th consecutive week of increases in the price of ULSD at the pump.
The increase is far less than the prior three weeks coming out of the start of the Iran war, which posted increases of 96.2, 21.2 and 30.4 cents/gallon, respectively. The scorecard over those 11 weeks of increases shows that the price of ULSD at the pump has risen by $1.942/g since January 12, when it was $3.459/g.
The current price of $5.401/g is the highest it has been since a $5.141/g price posted on November 28, 2022. The price was above $5/g for 32 weeks that year, following Russia's invasion of Ukraine in late February of that year.
While some products have already reached prices over $200/b, the diesel market is still recovering from these disruptions. The recent high settlement on March 20 of $4.6084/g translates to $193.55/b for a barrel of diesel delivered into New York harbor a month from now.
The market structure is backwardation, with the highest-priced barrel being the one with the most immediate delivery. This means that spot physical barrels of diesel for delivery in the first days and weeks of April will likely be priced significantly higher than the May ULSD price on CME.
Fuel suppliers look at the spot physical price when setting their wholesale numbers, depending on location. For example, a Milwaukee wholesaler would set their price based on Chicago spot diesel, while an Atlanta wholesaler's number would be based on the Gulf Coast.
These wholesale prices are what retailers see and set the direction of movements at the street level. The recent increase in diesel prices is a reminder that the market is still recovering from the disruptions caused by global events.
The process of price increases being transmitted to retailers can be complex, with multiple factors influencing the final price. However, it's clear that the diesel market is still adjusting to new realities.
As analysts like Jeffrey Currie note, the recent increase in diesel prices is a sign of 'molecular contagion' - the idea that small price movements can have a ripple effect throughout the market.
The recent increase in diesel prices is a reminder that the market is still recovering from the disruptions caused by global events.
