Retail diesel prices are slowly catching up with earlier big declines in the futures and wholesale prices of the fuel, though both of those markets have climbed off recent lows.

The Department of Energy/Energy Information Administration’s weekly average retail diesel price fell 15.8 cents to $4.596 per gallon on Monday. It represents the third consecutive week of double-digit declines, coming after drops of 17.4 and 21.3 cents per gallon, respectively. 

It also marks the first time since November 2008 for the DOE/EIA price, the basis for most fuel surcharges, to decline by double digits three straight weeks. Fourteen years ago, markets were falling in the wake of the September collapse of Lehman Brothers and the start of the Great Recession.

Steady declines in the price at the pump demonstrate retail diesel’s continued move toward normalcy, though it still has a long way to go. 

The FUELS.USA spread in FreightWaves SONAR, which reflects the differential between SONAR’s average retail price found in the DTS.USA data series and the ULSDR.USA average wholesale diesel price, has fallen in the past 10 days. Historically, that spread, while always volatile, normally moves toward a $1 to $1.05 per gallon price when roughly balanced. 

But the spread reached as high as $2.245 per gallon on Dec. 8 as futures and wholesale markets plummeted and retail failed to keep up. But on Thursday the spread had declined to $1.681 per gallon before jumping back up to $1.805 on Sunday.

That spread is likely to remain volatile given the futures market is as well, and wholesale prices follow the movements in futures and physical markets relatively closely. Seven days of declines over eight trading days earlier this month took the ultra low sulfur diesel price (ULSD) on the CME commodity exchange down almost 57 cents to a low of $2.7937 per gallon before a four-day reversal brought the price back up to $3.2834. 

Now prices have headed lower again, declining to a Monday settlement of $3.0534 per gallon, a 2.13% decline that was countercyclical to increases in the price of crude. 

Weather is often a factor in winter diesel prices because the fuel is a distillate like heating oil. While the remainder of this week sees forecasts of significantly low temperatures, the weather outlook into next week — which traders reportedly have now begun to focus on — are trending warmer. 

For example, while the high temperature forecast for Chicago on Friday and Saturday is about 10 degrees, the city’s forecast for next week calls for days all solidly in the 40s. 

That forecast helped push down natural gas delivered at the Henry Hub, Louisiana, delivery point Monday by almost 75 cents per thousand cubic feet, a decline of 12.8%. Diesel was seen as following the weather-inspired lead of natural gas. 

Physical markets have not trended higher recently. According to DTN, the physical spread in New York harbor, which has been as high as $1 per gallon in the last month, has been significantly weaker. 

The spread was a full dollar in the middle of November, according to DNT, meaning that ULSD delivered in New York harbor in the next few days was priced $1 per gallon more than the CME price for December ULSD, which was the front month traded at the time.

Now, barges in New York harbor delivered in the next few days are trading at 1 cent per gallon less than January ULSD on CME, according to DTN, as inventories reported Wednesdays by the EIA have significantly normalized after being as low as 80% of historical numbers just a few weeks ago.  

Broad macroeconomic trends that impact oil have been quiet in recent days. The only real push and pull between bulls and bears in oil markets in the past few days has come over the pace of China’s reopening and what it will do to demand. 

But even there, no broad consensus exists, a reason why global benchmark Brent hit a recent low of $76.10 per barrel on Dec. 9, rebounded to $82.70 just three days later, fell back to less than $80 again then settled Monday at $79.80.

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