DOE Diesel Benchmark Jumps 9.7 Cents to $6.276 per Gallon

The weekly Department of Energy/Energy Information Administration diesel benchmark — the number that drives most fuel surcharges — rose 9.7 cents per gallon this week to $6.276/g. The price is effective Monday but was released Tuesday, and it follows a big one-day move last week in ultra low sulfur diesel traded on the CME commodity exchange.

That sounds like a lot. Context softens it slightly. The benchmark remains roughly 25 cents below the all-time high of $6.529/g, set on September 22. Before this week's rise, the price had fallen for three straight weeks.

For carriers and shippers, the mechanics are simple: surcharges tied to the DOE/EIA number will tick up on the next billing cycle. A 9.7-cent move on a fleet burning thousands of gallons a week is real money, even if it reverses part of a three-week slide.

What did the futures market do?

Over on CME, ULSD had hit something of a lull going into Tuesday. That followed the surge of more than 21 cents per gallon on Tuesday, October 13, when the market woke up to the fact that short-term steps — primarily the Trump administration's diesel deal with Russia — would have limited to no impact on the supply/demand balance.

The 10/13 settle was $4.9344/g. Mid-morning Tuesday, at approximately 10:30 a.m. EDT, ULSD sat at $4.9457/g — not far from where it settled two weeks earlier.

Then the calm broke. Oil prices took a sharp move downward soon after those numbers were recorded. The trigger, according to multiple news outlets, was "unconfirmed" reports that Qatar and Pakistan together had proposed kick-starting new talks aimed at ending the Iran war. Those reports actually circulated Monday, and they seemed to give markets a fresh downward push Tuesday.

Read that again. Two nations not directly involved in the Middle East conflict floated — reportedly, unconfirmed — a peace process, and prices moved. That's a testament to how on edge this market is. Most external news in the past week had increasingly been discounted anyway:

• There haven't been enough differing reports to suggest either more or less oil moving through the Strait of Hormuz.
• The Russian diesel plan, while politically controversial in the U.S., isn't seen as significantly altering the supply/demand balance.

Is the crack spread saying anything?

A comparison of first-month Brent versus second-month ULSD on CME has mostly traded in a range of 83 to 88 cents per gallon for about a month, with the occasional pop over 90 cents. That relative stability signals two things at once. Diesel's premium over Brent remains stronger than historic differentials. But the spread has stopped blowing out — the relationship has settled into a relatively narrow band rather than continuing to widen.

What about the Phillips 66 lockout?

One development that shouldn't move prices: a lockout at the Phillips 66 Bayway refinery in New Jersey. Phillips 66 locked out members of the Teamsters Monday afternoon following the expiration of their contract, according to news reports. Operations at the refinery are said to be continuing normally.

Here's the practical difference from, say, an auto plant. A refinery can keep running normally for an indeterminate time before the absence of a workforce starts to bite. Unlike a strike that halts output on day one, a lockout's price impact arrives late, or not at all, if management keeps the units running.

What does this change for shippers and carriers? For now, surcharges step up on the benchmark's 9.7-cent rise, while the futures market tells them the next leg — up or down — likely hinges on headlines out of the Middle East rather than any structural shift in diesel supply. With the Brent–ULSD spread holding its 83-to-88-cent band and unverified peace-talk rumors already capable of knocking oil lower, expect the benchmark's direction next Tuesday to depend more on geopolitical wire copy than on fundamentals.