Key retail diesel price drops again, but is the bear market turning?

Key retail diesel price drops again, but is the bear market turning?

Retail diesel prices continue their downward trend, declining for the ninth week in a row as measured by the number used as the basis for most fuel surcharges.

The Department of Energy/Energy Information Administration weekly average retail price fell to $3.658 a gallon, a decline of 6.8 cents. The scorecard on the price is that the one-week decline is the largest since Dec. 18. The price has declined in 10 of the past 11 weeks and since the high level of the current cycle is down 88.7 cents a gallon from $4.545, where it stood Oct. 23.

Retail prices, as they do, are lagging large declines in future and wholesale prices. (Wholesale prices track drops in futures price fairly closely.) However, the recent long slide in the futures price of ultra low sulfur diesel (ULSD) has shown signs of late that it might be coming to an end, which would raise the question of whether the steady drop in retail diesel prices may be nearing the end of its run as well.

The 6.3-cents-a-gallon increase in the ULSD contract on the CME commodity exchange Monday was the biggest-one day rise since an increase of 8.48 cents on April 2. The Monday settlement of $2.4147 a gallon is up 12.88 cents in just four trading days from a settlement Tuesday of $2.2859.

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No significant bullish news has turned the oil markets around. But higher prices have been seen in the past few days not only in ULSD but in other key futures petroleum contracts. That includes world crude benchmark Brent, which was $77.52 a barrel last Tuesday and settled Monday at $81.63.

The lack of news and the increase led to speculation that is well worn among those looking for an explanation for a turn in the market with no obvious news: Traders, having seen prices fall steadily for several weeks, have decided to “buy the dip.”

If there was any news in the market Monday, it was bearish. News reports said Iraq is near an agreement with the semiautonomous region of Kurdistan that would resume operations in a crude export pipeline shut for more than a year. That pipeline runs through Kurdistan and into Turkey, where oil exports of about 500,000 barrels a day were shipped out from the Mediterranean port of Ceyhan.

It is uncertain whether any of that lost crude would have been exported by ship instead of pipeline, but the reopening of the pipeline cannot be seen as doing anything but putting downward pressure on prices.

Bloomberg published an interview with Adam Rich, deputy chief investment officer at Vaughan Nelson, a Houston-based investment manager, who discussed what industry chatter has begun to notice: The rise in U.S. production that has been one of the biggest forces undercutting OPEC+ efforts to boost prices has stalled.

The estimated field production reported weekly by the EIA of 13.3 million barrels per day that prevailed in February are now at 13.1 million barrels and have been so so for 13 weeks, according to the weekly statistical report of the EIA.

“We could probably keep the 12-13 million barrel-per-day level for six to nine more months, but if we don’t see rig counts really start moving up here, that’s going to be a big problem,” Rich said, according to Bloomberg.

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