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Another Day, Another 40 Cent Swing In Diesel Prices As The Parabolic Move Higher In Energy Prices Continues

Tuesday, Mar 8 2022
Market Talk

Another day, another 40 cent swing in diesel prices as the parabolic move higher in energy prices continues. ULSD prices reached a new record high this morning at $4.3437. Prior to yesterday, the record was almost 20 cents lower. Prior to March, the most severe 12 month backwardation in HO futures for a 12 month span was just under 50 cents/gallon. Today, prices 12 months forward are more than a $1.10/gallon cheaper than prompt values.

The rest of the energy complex are having huge weeks on their own, but are failing to keep pace with the runaway diesel prices. RBOB futures set a record high Sunday night, and although they’re up 16 cents on the day, they’re still 16 cents below that high trade of $3.89. Similarly, WTI is up $6/barrel today but remains more than $5 below yesterday’s high trade of $130/barrel. 

After another night of big price swings, it looked like perhaps futures were calming down for the day with RBOB “only” up a nickel and ULSD only up 13 cents on the day, then news broke that the US president would ban Russian oil exports and another big rally was on.  Perhaps later this morning people will realize that Russian oil was already effectively banned a week ago when companies stopped buying it voluntarily and prices will cool off, but then again, it’s another reminder that there is no short term replacement globally for Russian crude, and that we could still see prices move much higher as a result.  

While pain at the pump is real as retail gasoline prices will smash all-time highs this week, the impact of diesel prices on the economy should not be overlooked. This $1.50 increase in diesel prices in 2 weeks is going to create huge cost increases for commercial and industrial users, which will trickle down into the cost of good and transportation. Worst of all, for airlines just climbing out of the COVID hole, that may not have had a hedging program in place – or had a program priced on crude instead of distillates - a spike in prices like this could end in bankruptcy.   

Start thinking of the trickle down impact of those soaring diesel prices and it’s easy to see why the stock market hates this price spike so much, and why the end of this spike may be caused by a collapse in demand.  

Speaking of lower diesel demand, the White House announced new plans and funding to reduce emissions from trucks and buses in the US by handing out money to convert to electric or hydrogen powered vehicles. The timing couldn’t be better as anyone who didn’t hedge their diesel spend this year will be looking for options.    

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