DTN: Diesel Liftings Slumped Amid Price Surge

VIENNA (DTN) – Following the Iran-war induced surge in fuel prices, rack liftings of #2 diesel slumped nationwide in March, according to DTN refined fuels data. Demand recovered to pre-war levels after prices settled at a new, much higher level.

Nationwide rack liftings of ultra diesel pulled back amid the initial price spike. On the seven-day moving average, they fell more than 7% between early and mid-March. Wholesale fuel prices rocketed in that same time frame. The average rack price for #2 diesel on the Gulf Coast, for instance, shot up from $2.69 gallon antebellum to $3.68 gallon a week later and topped $4.5 gallon by the third week of the war, DTN pricing data showed. Prices have since oscillated in the $4.2-$4.5 gallon range.

This initial brief trough and subsequent recovery in diesel liftings was operational in nature. The longer prices stay this high, however, the larger the risk of actual demand destruction. For now, markets have absorbed the initial supply shock fairly well given the scale of the disruption, and the domestic refined fuels market is relatively shielded from the ongoing turmoil in the Middle East compared to Asia and Europe.

Some regions in the U.S., however, are more exposed to the conflict than others. California refiners rely much more heavily on crude oil imports from the Middle East than those on the Gulf Coast, especially for their supply of medium and heavy grades. Most consumed fuel is produced in state, and refining capacity is limited compared to other regions.

This fact was reflected in last month’s spot market movements. Diesel spot prices across the country have in late March surged above the highs reached in the first months of Russia’s invasion of Ukraine in 2022, with the rally being most pronounced in PADD 5. ULSD spot prices in Houston, for instance, rallied around 85% since the start of the war, compared to the doubling that occurred in Los Angeles, where the differential to ULSD shot up to $0.85 gallon, according to DTN data. This should be replaced with Diesel#2 data. 

Oil and product futures prices have been highly volatile since the start of the conflict, with conflicting headlines leading to significant intraday swings. This volatility bled into the spot and rack market. Diesel at the rack has over the past four weeks been regularly subjected to day-to-day price swings of 5% to 10%.