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Diesel crack spread surges to record $106 a barrel
Refiner profit margins breached the $100 mark for the first time in August
A truck refuels with diesel fuel at a gas station in Mitchellville, Iowa. (Bryon Houlgrave/Bloomberg)
Key Takeaways:
- U.S. diesel crack spreads rose above $106 a barrel Sept. 1, setting a record and signaling exceptionally strong refining margins.
- Global diesel supplies tightened after disruptions linked to attacks involving Iran and Russian refinery outages, pushing exports higher and inventories to record seasonal lows.
- Rising exports and low domestic supplies are likely to sustain pressure on diesel prices as heating demand and agricultural activity increase.
Refiner profit margins for making diesel from crude oil in the U.S. soared to a new all-time record Sept. 1, rising above $106 a barrel as the global crunch for the ubiquitous fuel showed few signs of abating.
READ MORE: Diesel leaps to 4-month high with supply squeeze worsening
The margin, known in the fuel refining industry as the diesel crack spread, breached the $100 mark for the first time in August. Margins had hovered near the record high set later that month before surpassing it Sept. 1.
Global diesel supplies have faced severe constraints since the U.S. and Israel first attacked Iran in late February. Prices for the fuel soared as shipments of crude oil and refined products were disrupted through the vital Strait of Hormuz. Fallout from Ukrainian drone strikes on Russian refineries, including a fuel export ban, has also put upward pressure on fuel markets.
As a result, U.S. diesel exports have surged. That’s likely to continue, especially entering the fall when demand picks up during heating season and amid increased agricultural activity in countries such as Brazil.
With the higher exports, domestic supplies have fallen to the lowest seasonal levels on record. Retail diesel prices are also near the highest since the Iran war began at $5.63 a gallon, according to the American Automobile Association. Soaring prices threaten a winter of higher heating bills and inflationary shocks just as Americans are acutely focused on affordability.
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The crack spread, which measures the difference between a barrel of ultra-low sulfur diesel and a barrel of West Texas Intermediate crude oil as priced on the New York Mercantile Exchange, is a rough gauge of actual refiner profits. But the spread is still an indicator of the sky-high profits available to refiners and the extent of market tightness.
