Diesel Prices Drop After Weeks of Increase – Latest Trends

After four consecutive weeks of increases, the Department of Energy/Energy Information Administration reported a drop in the price used for most fuel surcharges. The latest data shows that the average weekly retail diesel price posted by the DOE/EIA decreased by 3.9 cents per gallon , bringing the price to $3.826 . This is only two cents higher than the price at the same time last year.

Oil Markets Enter a "Dull" Phase

The oil markets, which have experienced significant volatility over the past years, have now settled into a narrow trading range. Philip Verleger, a leading energy economist, described the current state of the markets as "very dull."

In his weekly report , Verleger noted that although there is some tightness in the diesel market, it was more pronounced during the same period in 2022 and 2023. He suggested that the upward pressure on prices from the distillate complex, which includes diesel, jet fuel, and heating oil, would be limited.

Softness in Physical Markets

This softness is evident in some physical markets. For instance, the price of ultra-low sulfur diesel in the Buckeye Pipeline system, serving the Northeast and the Ohio Valley, was 15.5 cents lower than the CME price of the same fuel. On July 1, these prices were equal. Similarly, in the Chicago market, the price on Monday was 21 cents less than the CME ULSD, compared to a difference of just 3 cents on July 1.

Inventory Levels and Trends

The latest EIA inventory report revealed that stocks of ULSD in the U.S. rose to 113.8 million barrels, a significant increase of about 4.5 million barrels in one week. Despite this rise, the levels are close to the average for the first week of July, excluding the high numbers seen in 2020. The International Energy Agency's monthly report, released last week, highlighted a continuing supply-demand standoff. Despite cuts from non-OPEC groups, the market remains balanced.

Slowing Demand Growth

The IEA reported that global oil demand growth slowed to 710,000 barrels per day year-on-year in the second quarter of 2024, marking the slowest quarterly increase since the fourth quarter of 2022. Chinese consumption has declined, with the country's post-pandemic rebound coming to an end. The IEA forecasts global gains to average just below 1 million barrels per day in 2024 and 2025, impacted by slower economic growth, increased efficiencies, and vehicle electrification.

Supply Increases

On the supply side, the IEA noted a global supply increase of 150,000 barrels per day. Solid monthly gains pushed second-quarter output 910,000 barrels per day higher quarter-on-quarter. The third quarter of 2024 is expected to see growth of 770,000 barrels per day, with non-OPEC+ countries contributing 600,000 barrels per day. Annual increases of 770,000 barrels per day are anticipated for 2024, with gains of 1.8 million barrels per day expected next year.

OPEC+ Production and Market Stability

The oil market's inability to rise is not due to a failure by the OPEC+ group to reduce output. Although some members are producing above their agreed quotas, the latest survey from S&P Global Commodity Insights shows that OPEC+ output has decreased by 680,000 barrels per day since December. While there was some volatility in ULSD futures prices in late June and early July, the market appears to have stabilized for now. The ULSD price on CME settled at $2.5169 on June 28, rose to $2.6343 four days later, and then fell back to $2.6182 within another four days. It settled at $2.5136 on Monday, only 0.33 cents lower than on June 28.