The diesel index fell as talk of an oil glut came up again

After several days of falling prices on the main futures market, the price of benchmark diesel used in most fuel surcharges posted its biggest one-week drop in nearly two months.

DOE/EIA The weekly average retail price for diesel fell 4.3 cents per gallon to $3.711 per gram, as of Monday and published Tuesday. It is the lowest price since a price of $3,708/g was announced on August 25, and the largest one-week drop since a 4.6 carat/g drop on August 11.

It still fits within the narrow range that the DOE/EIA diesel price has found itself in since the second week of August. The lowest price was August 25, and the highest price was $3.766/g on September 8. Every price since August 11 has fallen between these numbers.

After the sharp decline in oil markets last week, there was a slight rebound on Monday and into Tuesday, primarily due to the news that OPEC+ chose over the weekend not to add as much oil to the market as expected.

Ultra-low sulfur diesel on the CME fell by about 19.25 ct/g in just five days of late September/early October trading through Friday. The recent high settlement of US$2.4289 per gram on September 26 fell sharply by Friday to settle at US$2.2363 per gram on Friday before rebounding in the first two days of trading this week following the OPEC+ news.

At approximately 11:30 AM EST on Tuesday, ULSD was up 1.33 carats/g on the day at $2.2676/g.

OPEC+, which met virtually, said it would increase production in November by 137,000 barrels per day, the same amount it plans to increase production this month, according to various news reports. This was considered somewhat bullish for the market given that there are some expectations that OPEC+ may be heading for a higher increase in production.

The smaller-than-expected increase came with speculation that the group may not be able to plan to add more to its global supply because it does not have the capacity to do so, a sentiment that would certainly be considered bullish.

But at the same time, there is a growing indication that longer-term models see a glut developing in 2026. These models also forecast a similar increase this year, but heavy Chinese buying is seen to have absorbed much of those extra supplies.

With no guarantee this will happen next year, the bull case has had its day.

Javier Blas, an opinion columnist with a long history of covering oil and commodity markets, described the potential supply glut as a “tsunami.”

The term has been used in a broader discussion about where to store this crude in the event of such a surplus. The incentive to store oil is created by the shape of the forward curve in the commodity market. Are delivery prices in the coming months enough to stimulate oil storage, given the cost of storage and the cost of financing, which Blass notes are higher than normal levels?

To reach a price scheme that incentivizes hoarding, the market needs to evolve into a steeper structure known as contango, where futures prices are more expensive than current prices.

Oil markets now have the opposite, a structure called underdevelopment. Blass’s argument is that the hull would need to be turned over to find a place for that excess oil.

Speaking about the crude market, Blass said that the market’s development into an emergency situation is inevitable. It may get there by lowering current prices.

“The only question is how far it will go, and whether it will be driven by lower spot rates or higher forward prices – and I think the $60/barrel threshold looks very vulnerable to the supply tsunami that is about to be unleashed,” Blass wrote.

More articles by John Kingston

ATBS: How a driver can succeed in the tough trucking market

SCOTUS grants review of intermediary liability issue; The fate of the second is unclear

Demurrage Dilemma: Court Strikes Down FMC’s Trucking Rule

this post The diesel index fell as talk of an oil glut came up again appeared first on Charging waves.