Diesel crack falls to $70 from $85 after G7 moves to release 100 million barrels
Diesel refining margins fell hard this week, with the ICE gasoil crack down to about $70 a barrel from as high as $85 in the middle of last week. The G7 said it would release up to 100 million barrels of crude and diesel over the next four months, and the threat of a US diesel export ban faded. For jobbers who watched distillate margins hit records last month, that is the first easing in wholesale diesel costs in weeks.
The export ban that faded
Washington had floated banning US diesel exports to hold barrels at home. That risk receding is part of what pulled the gasoil crack down, Warren Patterson at ING said in a note Monday. An export ban would keep product onshore and soften rack prices in the near term, but it rattles refiners and scrambles where barrels move. With the threat cooling, branded and unbranded distillate supply looks steadier going into the release window.
The release itself
The 100 million barrels of crude and diesel start flowing over four months. Governments in the biggest economies announced the release to take the edge off fuel costs. For a marketer, the signal matters as much as the volume. The release and the shelved export ban together took a bid out of a market that had been driving record distillate margins. Whether rack diesel follows the crack down to the street depends on how fast those barrels actually land.
Thin cushions underneath
Aramco CEO Amin Nasser said Monday the world has lost nearly 3 billion barrels of oil from stocks since the Iran war began, and called what is left "scarily thin." Crude flows from the Middle East are recovering, but the cushion that absorbs the next shock is thinner than it was.
What to watch
Watch whether the gasoil crack holds near $70 or drifts back up once traders price in how slowly 100 million barrels actually move. Watch the Strait of Hormuz, since Nasser tied the whole outlook to it reopening. And watch your rack: the crack easing at the terminal does not reach the street until wholesale diesel follows it down, and that can take weeks.