Is Diesel Really Below $3.30?

Fuel prices have been all over the map this year, trading as low as $2.40 in January and reaching over $5/gal in April. Year-to-date, NYMEX diesel prices have averaged $3.58. Just this week, prices have fallen below $3.30, the lowest level in months. The recent drop in prices looks like a win for consumers – and in many ways, it is. Yet fleets are still paying much higher prices for bulk fuel compared to the headline NYMEX ULSD price. So what’s the real price of diesel?

Although the NYMEX is a useful benchmark for oil markets, there’s a lot more that goes into setting fuel prices. There’s regional differentials (basis), pipeline shipping fees, terminal storage, and local supply conditions. In reality, even fleets that enjoy bulk fuel economics have paid an average of $3.83 this year – 25 cents above the average NYMEX level. Yesterday, as NYMEX diesel closed at $3.20, wholesale prices reported by OPIS were above $3.55.

Retail fuel buyers are paying even higher rates. Although diesel prices have been falling over the past 4 weeks, retail fuel prices were $4.49 last week after tax (the reported number was $5.141, which includes tax). That’s 60-70 cents above wholesale prices, and roughly a dollar above NYMEX prices.

The NYMEX is still the industry-wide benchmark for fuel prices. Because of its transparency, popularity, and liquidity, it remains the bedrock used by the industry to establish all other fuel prices. But it’s important to realize that the NYMEX isn’t necessarily the same as the price you’ll pay for fuel.

For bulk fuel buyers, that means your actual price could be 5 cents – or lately, 30 cents – higher than the headline price… and even more depending on the region. For fixed price, it means you could lock in a lower price based on the NYMEX (taking advantage of backwardation for even lower rates), but your delivered price could still be a bit higher than the NYMEX number. And for retail buyers, the NYMEX is an interesting indicator, but lower prices won’t find their way to the fuel pump for days or weeks after a downward move.