Why has the diesel retail-wholesale spread widened to 1.639?
The diesel retail-wholesale spread is 1.639, up 0.255 over the past month. The spread measures what a retailer clears between the rack price it pays and the pump price it charges. It widened while wholesale diesel was climbing fast, which runs backwards from how the spread usually moves, and the question is what pushed it.
U.S. diesel is 6.529, up 15.5% over 30 days, and the 30-day high of 6.529 is today. The pump end of the spread is at the top of its month. A rising retail number can widen the spread on its own, as long as the wholesale side underneath it did not rise by as much.
WTI crude is 95.77, up 14.8% over 30 days. Brent is 100.47, up 12.5%. Crude and diesel climbed at close to the same rate over the month, so the obvious read is that diesel got more expensive because the barrel under it did.
But crude moving with diesel does not explain a wider retail-wholesale spread. If crude lifted the rack and the rack lifted the pump, both ends would rise together and the gap between them would hold. Something lifted the pump relative to the rack, or held the rack down relative to the pump.
The 3:2:1 crack spread is 60.13, down 15.18 over the past month. The crack is the refiner's margin over crude, and it fell hard even as diesel rose. Refiners are earning less over the barrel than they were a month ago, so the wider retail spread is not landing with them.
RBOB gasoline is 3.241, down 7.1% over 30 days, while U.S. gasoline at the pump is 4.61, up 9.3%. Wholesale gasoline fell while diesel rose. Whatever is bidding up diesel is specific to diesel and is not a general lift across refined products.
The wire points at supply. Goldman Sachs told clients that a U.S. diesel export ban, which Washington is reported to be weighing for 90 days, could cut diesel prices by about $0.25 per gallon each week once it is in place, until storage fills. RBN Energy is writing about the same possible ban and the downside risk in it. Reporting out of Europe has diesel surging, with Ukraine named as only part of the story. Sky News says record diesel prices may have further to go. The common thread is that diesel supply looks tight and the market is pricing the chance of it getting tighter.
A wholesale market that is tight and jumpy is the kind that widens retail margin. Rack prices move day to day on export-ban headlines and refinery run-rate news. Pump prices move slower. A marketer facing a rack that could gap up tomorrow holds more margin today to cover the cost of refilling the tank at a higher price. The extra 0.255 of spread reads like retailers pricing volatility, not retailers catching a windfall.
The margin is landing with the marketers and retailers who run the racks and the stations, the people carrying the risk of a wholesale price that could move against them overnight. They are earning it for taking that risk this month. The refiners, going by the crack spread, gave some of theirs back.
The cost is landing on the people burning the diesel. Diesel costs have doubled for school bus contractors and districts in Morris County, New Jersey, according to the reporting there. A fleet buying at 6.529 with the pump at a 30-day high feels every cent of the widened spread on top of the higher barrel.
What I am fairly sure of: diesel is being bid up on its own supply story, the export-ban talk and the European tightness, and the tell is that wholesale gasoline fell while diesel rose, which points to a diesel-specific move rather than the whole barrel lifting. The wider retail-wholesale spread looks like marketers pricing that volatility into slower-moving pump prices, and the margin is landing with retailers and marketers while refiner margin over crude compressed.
What I am not sure of is how long it holds. The export-ban talk cuts both ways: a ban could pull the rack down and close the spread as pump prices lag on the way down, or force refiners to cut run rates, which cuts diesel output and tightens it further. For now the spread is wide because the wholesale side is nervous, and a nervous wholesale market pays retailers to hold the risk.
And that was just the data. See you tomorrow.