Why has U.S. diesel fallen 3.9% to 6.276 over the past month?
U.S. diesel is 6.276 a gallon, down 3.9% over the past 30 days. Diesel usually tracks crude, and crude rose this month. I started with crude to measure the gap.
WTI is 103.27, up 12.1% over 30 days. Brent is 111.7, up 8.4%. Both crude benchmarks rose while the fuel refined from them fell. That split is the question, and the crack spread measures it directly.
The 3:2:1 crack spread is 51.34, down 23.81 over 30 days. The crack is the refiner's margin on turning three barrels of crude into gasoline and diesel, and it narrowed sharply while crude climbed. When crude rises and the crack falls, product prices are lagging the barrel. The diesel drop runs across the whole product complex.
Gasoline confirms it. RBOB is 3.128, down 12.8% over 30 days. U.S. retail gasoline is 4.424, down 4.0%. Both products fell alongside diesel, and RBOB fell harder than anything on the board. A product complex softening against rising crude points either at demand, or at a premium leaving the market that had been priced in earlier.
The reporting pointed at the premium. Shanaka's Oil & Gas Letter reports that spot Brent's lead over December Brent futures fell from $33.26 to $6.43 between 2 and 20 October, and that three days later the futures closed at their highest since April. A spot premium that large collapsing in under three weeks is the physical market unwinding a scramble for prompt barrels. As the rush for barrels-right-now eases, the fear premium riding on top of refined products can come off too, even while the futures curve and crude flat price climb. That matches crude up and diesel down in the same month.
The easy explanation broke on inventories. If a supply-fear premium is draining out of diesel, diesel stocks should be comfortable. The same letter reports U.S. East Coast stocks of diesel and heating oil fell to their lowest September-to-December level since regional records began in 1990. The tightest the East Coast has been for this stretch of the year in 35 years, and diesel still fell 3.9%.
Tight stocks and a falling price at the same time needed a reason, and the wire had two. Freight is the first. OilPrice.com reports the cost of shipping crude from the U.S. Gulf Coast to China reached as high as $80 million earlier this month, ten times the average tanker rates that had held for years before the Iran war, and that freight rates have since eased. When it costs ten times normal to move a U.S. Gulf barrel to Asia, that barrel stays home. Crude that cannot economically sail east backs up on the domestic coast, and a refiner with cheap, close feedstock can keep product flowing even when stocks on paper look thin.
Fresh diesel imports are the second reason, and they are thin. One report says Russia has three diesel tankers headed for the U.S., and the two that can be named carry about 410,000 to 430,000 barrels, which the same report puts at less than 3 hours of American demand. Less than 3 hours of demand does not move the national price by itself. It does say cargoes are being aimed at the U.S. market. A separate report covers Secretary of State Marco Rubio's visit to Reliance's Jamnagar refinery, framed around processing heavy Venezuelan crude to cut global fuel costs. Jamnagar is one refinery and none of that supply has landed, so I am not counting it. The policy effort is pointed squarely at diesel, which fits a market still tight under a small price dip.
What I am sure of is the mechanics. Diesel fell 3.9% to 6.276 as a premium that products had carried came off, while the prompt crude scramble eased and cheaper domestic barrels backed up at home. The U.S. is not suddenly long diesel. The crack spread falling 23.81 to 51.34 is the cleanest read on it, since refiners earned far less on each barrel this month than last, and product prices led crude down.
What I am not sure of is whether the dip holds. East Coast diesel stocks at a 35-year seasonal low is a weak base for a lasting price fall, and heating demand builds from here. If freight relief reverses or those stocks draw further, the 3.9% could unwind quickly.
For operators the practical read is narrow. The diesel retail-to-wholesale spread is 1.356, down 0.283 over 30 days, so street margin on diesel tightened even as the pump price eased. A retailer who held price while wholesale fell kept some of that; one who followed wholesale down gave it back. With stocks this thin, I would treat the 3.9% as a soft spot in a tight market rather than the start of cheaper diesel, and buy forward cover accordingly.
And that was just the data. See you tomorrow.