Diesel is taking the wheel of the refining barrel. As we discussed in this week's Tradeview Report, the benchmark 3-2-1 crack spread edged just $0.52/bbl higher last week to $66.36/bbl, but that modest headline move masks a much more dramatic shift underneath.
Last week, as in many prior weeks, the focus was the strength of the diesel crack. After flirting near triple digits for a number of weeks, diesel cracks finally broke through the barrier, soaring to a record high of $105.66/bbl and closing above $100/bbl three days in a row.
Week-over-week, diesel cracks rose 5% to end Friday at $98.22/bbl (far right of purple line in chart below). Meanwhile, the gasoline crack fell 3% to $50.42/bbl, leaving the middle of the barrel firmly in the driver’s seat, and more than strong enough to offset weaker gasoline economics.
The magnitude of the move is even more striking on a year-on-year basis. Diesel cracks are now more than three times last year's level, while gasoline remains nearly three times as strong. With diesel trading at almost twice the gasoline crack, the refining barrel has become heavily skewed toward middle distillates. The key question now is whether the diesel crack can sustain these extraordinary levels or whether such outsized margins will eventually pull enough supply into the market to narrow the spread. For now, $100/bbl diesel is no longer a one-day spike, it is the defining feature of an exceptionally strong refining environment.
