All Quiet On The Diesel Front, For Now: Benchmark Price Up Slightly

But reflecting the current state of a market that has swung in a relatively tight range for several weeks, the price used for most fuel surcharges rose Monday by just 0.6 cents a gallon, to $4.034 per gallon. Outside of the week of Feb. 19, when the price was unchanged, this week's move is the first since Oct. 2 that didn't reach even 1 cent, up or down.

Oil markets have moved in recent weeks in a range that isn't particularly tight but does seem to be defined. It's been marked by upward moves that eventually fizzle and downard moves that find a bottom and rebound.

The result is a diesel market that in the past 25 days has settled on the CME commodity exchange as high as $2.7882 a gallon on March 18, and as low as $2.6065 on March 5. The Monday settlement of $2.6786 is closer to the low than the high, but that comes after a day in which it rose 2.58 cents a gallon over the Friday settlement. However, it's also just under the $2.6825-per-gallon average for those 25 days, which mark a period that began with a close less than $2.80 a gallon.

By contrast, during the 25 days prior to that stretch, settlements ranged from a low of $2.6536 a gallon to a high of $2.9642. That is a recent range of a little over 18 cents a gallon and the immediately preceding range of more than 31 cents a gallon.

But most of the market commentary and general online chatter has been more bullish than bearish of late, though that is not necessarily new. It's been tough to find many subscribers to the bearish school of forecasting in oil markets for many months.

Among the news reports and forecasts that bulls are pointing to:

• A news story out of Moscow said the government is telling companies to reduce their output in the second quarter to get Russian output down to 9 million barrels a day. In its latest survey, S&P Global Commodity Insights estimated Russian crude output in February at 9.43 million barrels a day. A cut to 9 million barrels would take more than 400,000 barrels per day off the market, a significant reduction in one step. It is a reduction that would bring Russia in line with its various promises to the OPEC+ group to reduce output.
• Goldman Sachs GS, according to news reports, made a broad bullish call on commodities Monday. It said in a report, according to news sources, that it sees the reduction in central bank interest rates as boosting demand and reducing borrowing costs — bullish for the economy and for commodities.

• A mixed report on diesel markets came from the research firm Energy Aspects. It said in a monthly report that diesel "fundamentals have loosened markedly as any impact from Red Sea shipping disruption has faded to the background and global demand is lackluster." But it also noted that there is "plenty" of refinery maintenance still to come in the next few weeks and that "markets should not be too complacent, especially as Russian refinery disruptions add to medium-term supply risks."
• Those Russian disruptions referred to by Energy Aspects are Ukraine drone attacks on Russian refineries that have removed about 375,000 barrels a day of refining capacity from the market, according to Reuters.

• Those bullish factors are not showing up yet in the futures market spread for ultra low sulfur diesel versus Brent on the CME. That spread Monday was less than 62 cents a gallon. A week ago, it was close to 72 cents.
• Despite the aggressive moves by OPEC to cut output, it's been increases in crude production by the U.S. and to a lesser degree Canada, Brazil and Guyana that have kept markets in check. While there is disagreement in the market about where U.S. output might end up when 2024 turns into 2025, the Macquarie Group on Monday released a highly optimistic forecast, according to news reports. It said U.S. oil production would close 2024 at about 14 million barrels a day, up from the current level near 13.2 million. Current forecasts among oil analysts call for a wide range of output changes in the U.S. this year, including some who see output as flat. But the Macquarie forecast is easily at the top of the range.
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