Diesel demand numbers point to a market that may be turning up

Two statistics this past week signaled that diesel demand may be picking up, suggesting that  trucking demand might be as well.

The Energy Information Administration’s (EIA) weekly statistical report showed that a proxy figure for distillate demand – most of it diesel – rose 11.8% in the week ended April 17, according to data released by the EIA on Wednesday, April 22. The figure of 3.12 million barrels/day (b/d) was a big jump from the figure reported a week earlier of 2.757 million b/d. The demand figures are under a category the EIA calls “Product Supplied.”

At the same time, the ULSDV.USA data series in SONAR on April 23 was reporting a jump in diesel demand of approximately 13.2% since April 16. The ULSDV records actual volume sold at the wholesale distribution point, known in the industry as the “rack.”

It is difficult to make perfect apples-to-apples comparisons between the two data series. First, the 13.1% jump in ULSDV.USA was recorded by comparing Thursday, April 23 to one week prior. The EIA data showing a jump of 11.8% was for the week ended April 17, so the date comparisons are not precise. Secondly, the EIA number includes other distillates like heating oil so it isn’t a perfect diesel-to-diesel comparison. But diesel is the predominant component in that figure. 

However, there are some parallel trends. The EIA recorded declines in demand of -5.7% in the week ended March 20, -2.6% in the week ended April 3 and a whopping -38% in the week ended April 10. Meanwhile, the Thursday-to-Thursday comparisons in the ULSDV.USA series showed a decline of 11.25% in the week ending March 26, a drop of 8.4% in the week ending April 2, and then three consecutive weeks of increase: about 1% in the week ending April 9, 2.2% in the week ending April 16 and the previously mentioned 13.1% increase from April 23.

The one number in all the series that in other times might be viewed as an outlier is the EIA demand figure for April 10. It was at 2.757 million b/d that week, a figure that in the history of the series on distillate product supplied hadn’t been reached for a non-holiday week since June 14, 1996. Every other time since then that it’s been under 3 million b/d was around Christmas, Easter, Labor Day, etc. So it’s possible that the jump of 11.8% was also a correction of  something not seen for almost 25 years.  

Overall, the ULSDV.USA number of April 23 was essentially flat to where it was on March 12. By contrast, barring a significant jump, the EIA number in the next report (which will be through April 24) is going to be down significantly from where it was in the week ended March 13. That number was just over 4 million b/d; even with last week’s 11.8% gain, distillate “Product Supplied” was still running about 900,000 b/d less than that. That is far from the flat trend shown in the ULSDV.USA figure.

Beyond the crazy swings of oil in general, one significant switch for the diesel market is that U.S. refiners are making enormous quantities of it. Consider these figures from the EIA: in the week ended March 13, if you added up the amount of finished gasoline and finished distillate products that U.S. refiners produced, about 31% to 32% of it was distillate, most of it diesel. That’s in line with the normal ratio. 

But last week, that percentage rose to 44% and that was actually down from the week before. 

The issue – gasoline demand has collapsed so thoroughly and completely that refiners are trying to make as little of it as possible. They prefer to tweak their refineries as much as they can to make diesel instead. 

The result, however, is that the price of diesel relative to the price of crude has been plummeting. For example, S&P Global Platts reported on April 23 that the spread between physical diesel in the U.S. Gulf Coast and the ultra low sulfur diesel (ULSD) contract on CME had dropped to minus 13.5 cents/gallon, the lowest since December 14, 2015. An article by Platts about the fall in price quoted a petroleum products broker saying the weakness in the market is “refiners still running too much.”

That’s not the only physical diesel market showing weakness. For example, the spread between the dated Brent crude benchmark and ULSD for export in the Gulf Coast, per Platts, was $9.15/barrel Thursday. On April 7, it was $15.01. Meanwhile, gasoline, which has been the ugly duckling in the market and the fuel refiners have been running away from, went from a negative $1.21 on April 7 to a positive $6.37/barrel margin Thursday as refiners make less of it.

The good news then for diesel consumers is that as demand shows signs of stabilizing, refiners have made plenty of your favorite product. It’s just waiting to be consumed.