Dollar Tree, Dollar General, King Dollar ... and now, Dollar Diesel in the US

Big-time refined product traders are now shopping at the dollar store for their diesel. Platts assessed the spot market of benchmark US Gulf Coast ultra low sulfur diesel at exactly $1/gal on Wednesday, Dec. 16.

Not $1.0014/gal. Not 99.93 cents/gal. Not $1.0001/gal. Nope. $1/gal on the mark.

So for the same price as a 40-square foot roll of aluminum foil at a dollar store, you can also power your shiny European diesel car for up to 40 miles. Wrap your mind around that.

The cost of 10 party invites, 20 party napkins or a 12-foot banner can power your diesel generator for more than an hour. How's that sound? (Besides noisy, I'd bet.)

What you'd pay for cheap sunglasses or 16 ounces of SPF 50, broad-spectrum sunscreen is roughly the same as what railroads brag they pay for the one gallon of diesel it takes to haul a ton of freight 500 miles. The future's so bright.

It's just odd. Spot markets don't usually trade at a nice round number like that. Especially refined products, which trade at a spread — or differential — to a futures market, in this case the NYMEX ULSD January futures contract. Platts assessed the paper futures at $1.11/gal at 3:15 p.m. Eastern Time on Dec. 16, while the differential for physical Gulf Coast pipeline ULSD was assessed at an 11-cent discount to those futures based on seven trades by the likes of Trafigura, Koch and US Oil.

Blog post continues below...

Request a free trial of: US Marketscan
	US Marketscan provides you with a daily market overview of the major refined products in the United States delivered via e-mail. It carries spot prices for all key products traded in the US market. Gasoline, heating oil, jet fuel, residual fuel and naphtha prices are listed for the Atlantic Coast, Gulf Coast, Group 3, Chicago and West Coast markets. Each issue also includes insightful market commentary.

The futures are highly liquid instruments that trade two decimals past the penny and don't land any more often on the 5 or 0 as the 1 or 7. So basically, there's a one-in-five chance to match up with differentials, which trade almost exclusively in 5-point increments. Then again, they'd have to perfectly offset whatever cent and point discount or premium to the dollar was needed.

And they'd need to be close to the actual dollar, of course. That's something new. A year ago on the same day, the flat price was at $1.6785/gal. Just a few months earlier, it was $3.0106/gal, on June 20, 2014. That was a typical price since a record high of $4.11385/gal on July 11, 2008.The fuel was only introduced in the mid-2000s, with Platts starting its assessments on May 1, 2006, at $2.2065/gal.

Platts has done 2,414 assessments since then for the widely traded diesel benchmark, and only 31 have landed squarely on the cent, without any fractional points afterward. This was the first to land on an exact dollar.

Mind you that, unlike dollar stores, it actually takes a lot of money to buy $1/gal diesel. That's because this is the spot market, not the retail market where government data showed the US average for diesel at $2.338/gal on Dec. 14, 2014.

The spot market is where refiners, trading houses and end-users go to buy and sell 25,000-barrel lots that come out of production or out of storage or elsewhere before batches begin the distribution process, getting cut down to size for pumping 25 gallons into a car tank. And 25,000 barrels is slightly more than 1 million gallons. Even at $1/gal, that's a lot of money. Slightly more than $1 million a traded piece, but far less than the $3 million a year and a half ago. Or the $4 million of more than seven years ago.

This Wednesday was only the third-lowest price ever paid for a gallon of Gulf Coast ULSD. Yesterday, Dec. 17, it was assessed at 99.90 cents/gal. The record low? That was 98.08 cents/gal, set Monday, Dec. 14, 2015.

That one was below even what they charge at the 99-Cent Store.