Why has the diesel retail-wholesale spread narrowed to $1.015/gal?
The diesel retail-wholesale spread is $1.015/gal, down $0.724/gal over the past 30 days. A month ago a retailer selling diesel held a good deal more between what the rack charged and what the pump collected. Now it is about a dollar, and I wanted to know which side of that gap moved.
ULSD futures are up 33.9% over 30 days, against a 30-day low of $3.0931/gal and a high of $4.4955/gal. Wholesale cost rose by roughly a third inside a month. Retail diesel does not reprice at that speed. Street prices reset on delivery cycles and on what the station across the road has posted, so a wholesale move of that size compresses the retail side before the pump catches up. Most of the $0.724/gal is explained right there. It is a timing gap, and there is nothing unusual in it for the retail business.
The obvious next read is that something specific happened to distillate. The crude series says otherwise. Brent is up 37.1% over 30 days. WTI is up 31.8%. Brent rose faster than ULSD did over the same window, and WTI rose only slightly less. Diesel got expensive because crude got expensive, and the retail spread narrowed as a consequence of a crude repricing that started upstream in the fuel chain.
If the whole move came from crude, refining margins should have taken a hit. The 3:2:1 crack spread is $59.93/bbl, up $5.11/bbl over 30 days. It widened. RBOB gasoline is $3.3254/gal, up 15.4%, less than half the percentage move in WTI, and two thirds of the 3:2:1 basket is gasoline, so on the arithmetic I would expect the crack to have compressed. Part of the answer may be the path the prices took. WTI's 30-day low is $68.25/bbl, well under where the contract sits after a 31.8% run, so a 30-day change measured endpoint to endpoint hides an enormous amount of movement in between. A crack quoted today against a crude price that has already come off its high reads differently than the same spread quoted at the peak. The honest answer is that the $5.11/bbl gain is real as a reading and I am not certain how much of it is refinery economics and how much is where the two legs happened to be sampled.
One input does support genuine margin strength at the refinery. Henry Hub natural gas is $2.921/MMBtu, down 9.3% over 30 days. Gas is the process fuel and the hydrogen feedstock for hydrotreating, which is the expensive part of making ULSD to spec. Cheaper gas lowers a refiner's variable cost per barrel run at exactly the moment crude is costing more. That could explain part of the crack holding up while crude was getting more expensive, though I would want to see actual refinery utilization before leaning on it.
The wire gives me nothing pointing to a physical problem. Across the last 14 days the most-covered sector is Prices at 1844 items, then International at 1429 and Biofuels & Renewables at 1100. Refining & Markets is 848. Diesel & Freight is 738, the smallest of the five. Nothing in the diesel coverage points to a supply problem. No refinery outages and no pipeline allocation are showing up in it. When distillate tightens physically, the freight and refining coverage usually rises ahead of the price coverage. That is not what the coverage shows.
What diesel coverage exists points somewhere else entirely. Newport News schools are reporting savings after switching buses from diesel to propane. Allegany County converted its public transit fleet to propane autogas. There is research out on using spent coffee grounds as a biodiesel route. Fleet substitution is a slow trend and it does not move a retail margin inside 30 days. Still, the diesel stories being written right now are about fleets switching to propane. None are about anyone struggling to get supply.
So the answer, as far as the data carries it. Wholesale diesel cost rose roughly a third in a month on a crude move that lifted Brent by more than a third, and retail pump prices did not follow at the same speed, which pulled the retail-wholesale spread down by $0.724/gal to $1.015/gal. Retail gave up margin and refining picked some up, with the 3:2:1 improving by $5.11/bbl. Both of those are ordinary responses to a fast crude repricing.
What I am not sure of is how long it lasts or whether $1.015/gal is genuinely thin. I do not have a multi-year history of that spread in front of me, so I can tell you it fell by $0.724/gal and not whether a dollar is poor by the standard of the last five years. Nothing in this data calls the direction of crude and I am not going to pretend otherwise. Anyone buying on rack-plus took the full increase the day it happened. Anyone selling at retail is working on about a dollar until the street catches up.
What to watch. Track your own rack-to-retail lag: if pump prices keep climbing while ULSD sits flat, the spread should rebuild on its own and you can see it week to week in your own numbers. Refinery utilization prints would tell me whether the crack gain is margin or sampling. The last one is whether crude holds near current levels. If Brent slides back toward the low end of its 30-day range, the wholesale side would come down and this whole question would run the other way.
And that was just the data. See you tomorrow.