D-Day Approaches: Crack Spread Soars As Diesel Market Braces For Historic Shock

Tyler Durden's Photo
by Tyler Durden
Tuesday, May 03, 2022 - 09:05 PM

While the market's attention - and certainly that of the administration - has been focused on the surge in gas prices due to their vast political implications, the real action - and threat - is in diesel, as discussed extensively and most recently in "Why Every American Should Care That Diesel Prices Are Surging Across The Country", and also in the following articles from the past 3 months.

Well, with every passing day, D (for Diesel)-Day approaches, and as Bloomberg's Natalia Kniazhevich observes today, the crack spread - or profit margins from products such as gasoline, diesel and jet fuel - reached the highest since the freak oil collapse of April 2020, confirming what we have been saying since January, namely that shortages in fuels like gasoline and diesel are greater than in crude oil.

Echoing what we have discussed on numerous occasions, the spread indicates that demand for refined products, mostly diesel, is so strong that refiners have only limited spare capacity to meet it.

There is a glimmer of hope: during the pandemic, lots of refinery units were shut down and there were few new additions to the market. Now that U.S. refiners have been steadily coming out of maintenance, as they begin ramping up for high-demand summer season, the tightness in the refined-product market may ease.

Of course, if demand destruction in diesel does not materialize soon, and remains at current high levels just as summer gasoline demand spikes, then all bets are off.