Diesel still ripping higher than the rest of the barrel; here’s why

Diesel prices have been steadily increasing and have now surpassed the rates of other fuels. To understand the reason behind this, one must look at the comparison between crude oil and diesel prices. On February 27, before Iran started its military action with the U.S. and Israel, Brent crude settled at $72.48/barrel, while ultra-low sulfur diesel (ULSD) settled at $2.596/gallon.

Since then, Brent has risen by 26.4%, while ULSD has increased by 71.5%. The price of RBOB, a product that serves as a proxy for gasoline, has risen 56.5% since the beginning of the Iran war.

The gap between crude and diesel prices is significant, making diesel the center of attention. Jeffrey Currie, a former head of commodities at Goldman Sachs, has pointed out that crude oil production is consumed by refineries, while the consumer focuses on product prices. Historically, the spread between the two has been relatively stable, but now diesel is about half the value of ULSD. A recent article in Axios titled "Diesel desperation is mounting" highlights the mounting concern over diesel prices.

Some factors contributing to the disparity between crude and diesel prices include the Russian refining infrastructure being targeted by Ukrainian forces, resulting in a reduction in Russian output. Russian refining runs have dropped from 5 million barrels per day (b/d) to 3.8 million b/d in July, marking a 25-year low. Additionally, U.S. refiners are responding to the stronger diesel market by increasing production to take advantage of the spread.

The Energy Information Administration's weekly report shows that refinery utilization rates are consistently above 95%, with the latest weekly report at 97.2%.