Why has ULSD diesel climbed 10.5% in a month?

ULSD futures are 4.483, up 10.5% over the past thirty days. That is a real cost jump for anyone who buys diesel by the rack and sells it by the gallon, so the question is worth an hour: what moved it, and how much of the move is something an operator should plan around.

The first place to look is crude, because most of what a diesel barrel costs is the oil that went into it. Brent is 91.87, up 9.7% over the same thirty days. WTI is 87.58, up 8.4%. Both climbed nearly as much as diesel did. So the bulk of the ULSD move is not a diesel story at all. It is crude going up and dragging every product up with it. Strip that out and diesel outran its own feedstock by under a point.

That gap is small, but it is the part worth chasing, because it is the only part that is about diesel specifically. If diesel had risen exactly in step with crude, there would be nothing to explain past the price of oil. It rose a little faster. The wire points at why. One headline from The Real Economy Blog says diesel inventories are near a 20-year low as prices rise. Low distillate stocks put a premium on every gallon that is actually available, and that premium is the piece of the 10.5% that crude does not account for.

The crack spread is where I expected that tightness to show up hardest, and it mostly did not. The 3:2:1 crack is 61.74, up 0.5 over thirty days. A refiner turning crude into diesel and gasoline is earning about what it earned a month ago. That reads odd next to a 10.5% jump in the diesel price, until you remember crude rose almost as much. The refiner sells diesel for more, but pays more for the oil, and the margin between the two barely widened. Refining is having a normal month at a higher price level, not a windfall. The higher diesel number is passing through the refiner, not stopping there.

So it keeps moving down the chain, and the next stop is the street. The diesel retail-wholesale spread is 1.384, up 0.183 over thirty days. The spread is the marketer's and retailer's cut between what they pay at the rack and what they charge at the pump, and it widened. Not by a lot, but it moved the right way for the people selling the last gallon. When wholesale climbs fast, retail pump prices tend to lag on the way up, and a lagging pump price against a rising rack cost usually squeezes that spread. Here it did the opposite and grew. For a station operator that is a decent month on the fuel margin, earned by holding street price while cost climbed underneath.

The retail diesel price backs up the lag idea. U.S. diesel at retail is 5.652, up 6.4% over thirty days. Futures up 10.5%, the pump up 6.4%. The street has not passed through the full futures climb yet. That is normal timing, and it is the reason the retail-wholesale spread looks the way it does right now. If futures hold here, retail has more catching up to do, and the spread that widened this month could give some of that back as pump prices climb to meet the cost. An operator sitting on the current margin should not assume it stays.

One more number to make sure this is really a diesel-specific tightness and not a general fuel shortage. Total U.S. petroleum inventories are 428.91, up 6.0% over thirty days. Overall stocks rose. So the country is not short of petroleum broadly. It is short of diesel specifically, which is exactly what a distillate inventory near a 20-year low says. The tightness is in the barrel operators care most about and not in the pile generally. The ethanol print says the same thing from the other side: ethanol fell 2.06% in August and is down 7.45% since May, per CPG Click Oil and Gas, so the renewable side of the fuel slate is getting cheaper while diesel gets dearer. Whatever is lifting diesel is not lifting fuel across the board.

So the honest answer. Most of the 10.5% is crude, up around ten percent itself, and any operator planning around this should treat it first as an oil-price move that will come back down if crude does. The smaller piece, the part that is diesel and not oil, comes from distillate inventories near a 20-year low, and that piece is the one that could stick even if crude eases, because low stocks take time to rebuild. Refiner margins barely moved, so this is not a refining event. The one thing that clearly shifted in the operator's favor is the retail-wholesale spread, up 0.183, and I would not count on keeping all of it, because retail at up 6.4% still trails futures at up 10.5% and the pump may have to rise to close that gap.

What I am sure of: crude drove most of it, and diesel stocks drove the rest. What I am not sure of: whether the low-inventory premium holds or fades, because the data here tells me stocks are tight but not whether they are refilling. The refill pace is what I would watch next.

And that was just the data. See you tomorrow.