DOE/EIA diesel benchmark falls 9 cents to $4.578 as retail price gauges split apart

The DOE/EIA average weekly retail diesel price fell 9 cents to $4.578 a gallon, effective Monday and published Tuesday, its 12th decline in 13 weeks. For jobbers running freight contracts, that number is the one that matters, because it sets most of the fuel surcharges built into hauling rates.

The surcharge benchmark

The DOE/EIA weekly average is the benchmark built into the surcharge tables that shippers and carriers settle against. When it drops 9 cents in a week, surcharge revenue on those contracts drops with it, and it has now done that in 12 of the last 13 weeks. The run would have been straight through except for a one-week jump in early May.

For a marketer selling into fleet accounts, a falling benchmark squeezes the spread you were carrying when you priced the deal. Rack costs and the surcharge reset on different clocks, so a fast slide can leave you selling gallons against a surcharge that already stepped down.

The price disparity

Three separate reads on the street price are drifting apart, and the gap is wide enough to notice. The DOE/EIA weekly print is $4.578. The AAA average for Tuesday is $4.765, up a little under a cent on the day. That is close to 19 cents between two numbers that both claim to be the retail diesel price.

FreightWaves calls the underlying oil market bifurcated to an almost historical degree. For anyone pricing off a benchmark, the practical problem is picking which one your customer uses and knowing it may not track what your rack is doing.

Iraqi crude

Indian state refiner MRPL chartered a tanker to load Iraqi crude bound through the Strait of Hormuz, the first Indian state refiner to book a Hormuz cargo since the chokepoint tentatively reopened.

That is a demand signal worth watching from a US desk. India is the world's third-largest crude importer, and its state refiners stepping back into Middle East barrels through Hormuz says buyers are treating the strait as passable again. If that holds, it takes some risk premium out of the crude benchmarks that feed US rack pricing.

What to watch

Whether the DOE/EIA benchmark makes it 13 of 14 next Tuesday, and how far AAA and DOE/EIA drift before they converge. On crude, watch whether more Gulf and Asian buyers follow MRPL through Hormuz, which could ease the premium if the strait stays open.