Diesel Prices Finally Ease as Refinery Maintenance Takes Center Stage

Latest News / By Manifest Global Logistics

Published September 26, 2023

Just when it looked like we were stuck in an endless cycle of diesel price hikes, there’s finally some good news for our wallets. The latest data from the Department of Energy’s Energy Information Administration (DOE/EIA) shows that the average retail weekly diesel price has taken a surprising dip, giving us all a much-needed breather.

The new price stands at $4.586 a gallon, marking a decline of 4.7 cents. It’s been a long time coming, considering we’ve endured 11 straight weeks of price increases, with one particularly painful spike of 22.2 cents a gallon in the mix and a week where things just held steady.

To put it in perspective, since the starting point of this relentless surge back on July 3 when diesel was a comparatively modest $3.767 a gallon, we’ve seen prices skyrocket by a staggering 86.6 cents a gallon, bringing us to the previous week’s painful $4.633 per gallon.

This unexpected dip in diesel prices coincides with a drop in the futures price of ultra-low sulfur diesel (ULSD), which fell 4.4 cents a gallon to a settlement of $3.2622. This comes after hitting a recent high of $3.4815 a gallon on September 14, signifying a significant 21.93 cent decrease on the CME commodity exchange. The settlement on Monday was the lowest in nearly three weeks, harking back to September 7.

The reason behind this price dip can largely be attributed to a surge in refinery maintenance activities taking place globally. This slowdown in production is reflected in the most recent EIA weekly statistical report, which indicates a national average refinery utilization rate of 91.9%, the lowest we’ve seen since the end of June. It’s worth noting that the utilization rate for the last week of June, at 91.1%, seems like an exception amidst a string of weeks where rates were comfortably in the 93%-94% range or even higher.

But don’t start celebrating just yet. September 25th is here, and some are already peering ahead to the end of maintenance season. The monthly middle distillates report by Energy Aspects, which specializes in market analysis, highlights several factors still working in favor of diesel prices. These include a tight Russian diesel market, partly due to an export ban imposed by Russia, extensive maintenance schedules at Russian refineries, significant maintenance programs at key U.S. East Coast refineries, and stricter export regulations in China.

However, Energy Aspects also anticipates that cracks in the market—referring to the spread between crude oil and diesel—will soften as we move past the bulk of the maintenance activities. Refinery operations are expected to ramp up significantly starting in November, but any real downward pressure on diesel prices isn’t expected until the first quarter of 2024, largely due to capacity startups in regions like South Asia and other parts of Asia.

Speaking of crude oil, the debate rages on among analysts regarding its future. Some believe the market is nearing its peak, while others see it continuing to steam ahead. Brent crude prices, in particular, have hit a plateau, hovering around $94 a barrel since September 14. The last three settlements have been $93.30, $93.27, and $93.29 a barrel, indicating a market that’s essentially treading water.

P Morgan’s head of energy equity research for Europe/Middle East/Africa, Christyan Malek, has even suggested that Brent prices could embark on an upward cycle that takes them to a whopping $150 a barrel by 2026. The bank cites a projected supply/demand imbalance next year at a shortfall of 1.1 million barrels a day, with a potential increase to a staggering 7.1 million barrels a day by 2030 if investment in drilling doesn’t pick up. It’s a stark reversal from earlier predictions by JP Morgan that Brent prices were unlikely to reach $100 a barrel.

As an interesting side note, the Department of Energy has reassured us that it will continue to publish its weekly diesel price data and other essential statistics, even if the federal government decides to go into a shutdown mode come October 1st.

So, while there’s a glimmer of hope with the recent dip in diesel prices, the energy market remains as unpredictable as ever, leaving us all to wonder what’s next on the horizon.