Why did ULSD jump 30.4% in 30 days while the retail diesel spread fell $0.724 a gallon?
ULSD futures are $4.143/gal, up 30.4% over the past 30 days. Over that same stretch the diesel retail-wholesale spread went the other way, down $0.724 to $1.015/gal. What follows is where that move came from and what the spread drop does to retail margin.
Crude
Start with crude, because that is where a diesel move usually begins. WTI is $89.96/bbl, up 27.9% over 30 days. Brent is $91.95/bbl, up 24.7%. So most of the ULSD move is crude. Diesel ran a few points ahead of WTI and a bit further ahead of Brent, which is a product premium sitting on top of a crude rally.
Gasoline
RBOB is the number that does not fit. Gasoline is $3.255/gal, up 13.0% over 30 days. Crude went up about 28% and gasoline went up 13%. Gasoline lagged crude by a wide margin while diesel beat it. Refiners buy one barrel and sell both products, so when the two legs move that far apart, something is pulling on the distillate side specifically. The data here does not tell me what. It could be distillate inventories. Export demand would do it too. I can see the gap. I cannot source it from what I have.
Refining margin
The 3:2:1 crack spread is $59.19/bbl, up $4.37 over 30 days. Refining margin moved up with the rally rather than against it. Crude rose sharply and refiners still widened their margin, which means product prices rose faster than the crude they were made from. Refiners had a good month on this data.
The 30-day range
Look at the 30-day range on ULSD. High $4.496/gal, low $3.093/gal. Today's $4.143 is well below the high. WTI tells the same story: high $112.95/bbl, low $68.25, now $89.96, which is nowhere near the top of its own range. Brent ran to $118.35/bbl and is $91.95 now. So the month was not a clean climb. Prices went considerably higher than where they are today and came back down. An operator who bought at the peak of that range is carrying inventory above the current board.
The retail spread
Diesel retail-wholesale is $1.015/gal and it fell $0.724 over 30 days. The spread is the difference between what a retailer pays at the rack and what they charge at the pump. That is a large drop off a small base, and it came out of retail margin. Wholesale followed futures up roughly 30% and street prices did not follow all the way up. For anyone selling diesel at a truck stop or a c-store, the barrel got more expensive faster than the pump could be repriced.
Producers and refiners kept the gain from this move. Crack spread widened $4.37/bbl while the retail spread narrowed $0.724/gal. Retail absorbed the compression because pump prices reprice slower than the rack. A retailer raising the pump price 30% in a month risks losing volume to the station across the street that has not repriced yet, so retailers reprice slowly and eat the compression while it lasts. That is normal and it usually recovers on the way back down, when wholesale falls faster than the street price does.
Natural gas
Natural gas is the odd one. Henry Hub is $2.923/MMBtu, down 9.3% over 30 days, while storage is up 10.8%. Gas fell while crude and diesel rose. Refineries burn gas for process heat and hydrogen, so cheaper gas held one input cost down while crude went up. That offset is small against a 30% crude move. It is still one reason refining margin could widen through a crude rally instead of getting compressed by it.
The wire
The wire is thin on this. What I have is a Romanian report that gasoline and diesel prices will exceed 30 lei, and a UK report warning of 180p diesel. Both of those are retail pass-through stories in other countries, which tells me the move is not a US-only distillate event. It does not tell me the cause. The topic counts back that up: Prices was the most-covered topic over the past 14 days at 1865 items, with International at 1412 and Diesel & Freight at 727. The move is getting a lot of coverage. I did not find reporting in what I pulled that explains the distillate premium over gasoline.
What I am sure of: the ULSD move is mostly a crude move, and crude ran up close to 28% on WTI. Refining margin widened through it. Retail diesel margin compressed by a large amount, and anyone selling at the pump is living with that compression now.
What I am not sure of: why diesel beat crude and gasoline lagged it by that much. That gap is the piece of the month I cannot explain with the data in front of me, and it is the thing I would want inventory numbers for before saying anything more.
What to watch
If you sell diesel retail, your margin is compressed right now and it may stay compressed while wholesale holds near current levels. A drop in wholesale could bring that spread back quickly, and the discipline is to hold street price steady on the way down rather than chasing a competitor lower. Fleet buyers should note that today's $4.143/gal is meaningfully below the $4.496 high of the past 30 days, which is the number to have in front of you in a hedging conversation. For anyone watching the crack, a crack at $59.19/bbl and rising means refiners have room, which usually means runs stay up.
And that was just the data. See you tomorrow.