On Tuesday, diesel fuel surcharges saw a dip in pricing despite the fact that its futures were on an upwards rise – puzzling many experts. Some analysts speculate this anomaly could be attributed to sanctions against Russian diesel production.
After a slight delay due to the Presidents Day holiday, Energy Information Administration records indicate that fuel prices have dropped significantly from last year’s high. Tuesday saw an impressive 6.8 cent drop per gallon bringing 2021 rates back to pre-Ukraine invasion levels of $4.376 – its lowest since February 28th, 2022.
Tuesday’s DOE/EIA report revealed a surprising trend, with Ultra Low Sulfur Diesel prices taking off on the CME commodity exchange. Despite drops in other petroleum futures contracts, ULSD jumped 2.86%, or nearly 8 cents per gallon to settle at $2.7919.
Unsettled oil markets stumbled this week, with West Texas Intermediate crude slipping 0.24% to settle at $76.16 per barrel, Brent closing down the day after a decline of 0.6%, and RBOB gasoline dropping slightly by 0.31% settling in at $2.4156 per gallon respectively.
A wave of restrictions on the Russian oil market has caused a surge in diesel prices, while other commodities have seen their values drop drastically.
Europe has taken measures in recent months to put a lid on the price of Russian diesel, preventing it from selling for more than $100 per barrel. This move came as part of an EU sanctions package barring any oil traded beyond this ceiling from being transported or insured by European-based firms. In spite of these restrictions, policymakers remain optimistic that there will be sufficient interest among buyers and sellers at the capped rate.
In an effort to curb Russian economic activity, a cap of $100-per-barrel has been placed on products across the country. Though Russia is not known for exporting much gasoline, fuel oil – used mainly in power generation and manufacturing – stands out as one their main exports which could potentially be limited due to its lower price point. It’s considered unlikely that fuel oil will bump up against this ceiling any time soon though.
EU sanctions against Russia could put a strain on the global diesel industry, as the country is one of its key exporters.
According to a Bloomberg article Tuesday, which appears to have spurred the increase in diesel relative to the rest of the barrel, “the early signs are that (the sanctions) are having at least some of the desired effect.”
The article, utilizing data from Vorttexa, noted a surprising trend in European diesel markets has emerged- the price of Russian grade diesel is falling relative to other grades while exports remain fairly steady, citing only a slight dip in export figures from last month.
In a move to limit the amount of money going to Moscow, EU plans have been designed so that Russian oil supplies can still be made available on global markets- though at an economically capped price. Whether this plan is working as intended is debatable, as if this were the case a bearish reaction should be expected.
The ban of imports of Russian diesel into the EU do appear to be holding strong. A recent report by S&P Global Commodities Insights confirms that Spain is actively blocking entry of vessels deemed to be carrying cargo related to the nation – even if they are registered in Singapore. This demonstrates Europe’s commitment towards forming stronger economic relationships with countries other than Russia and enforcing existing sanctions concerning imports into their member states.
Despite futures prices of diesel showing an upward trend on Monday, physical spreads in the United States have not had a comparable increase. Physical barrels traded between locations such as New York Harbor and U.S Gulf Coast are typically priced at premium or discount to CME Ultra-low Sulfur Diesel (ULSD) price; however this has yet to manifest itself with any drastic change within the current market landscape.
A surprising downward trend hit the ULSD market in New York Harbor this week, as traders saw a flat price on Feb. 9 and 10 followed by a negative-2 cent differential on Tuesday.
Some of the recent decline in retail diesel prices has come as a result of pump prices catching up to earlier drops in wholesale prices, which generally track futures market moves closely. For now, that trend appears to have run its course.
According to data from FUELS.USA, the decline in pump prices paralleled a narrowing of that wholesale-to-retail spread with figures in December and January declining far more quickly than the fall in futures wand wholesale prices. The recent decline in retail prices, however, reflected in this week’s DOE/EIA rate is coming on the back of declining wholesale and futures prices, which before Monday’s increase dropped almost 21 cents last week.
Source: Freighwaves
