Analysis: USGC Diesel Crack More Than Doubles


   
Miguel E. Andujar
DTN Refined Fuels Market Reporter

   DAVENPORT, FL (DTN) -- U.S. Gulf Coast (USGC) diesel crack spreads remain 
near their highest levels of the year, signaling refined product markets are 
tightening even as crude oil prices pull back sharply from their 2026 peak.

   The USGC ultra-low sulfur diesel (ULSD) crack spread settled at $58.72 bbl 
Thursday (7/9), more than double the $25.10 bbl recorded on the same date the 
previous year. Jet fuel and gasoline refining margins also exceeded twice their 
levels from the previous year, reaching $52.24 bbl and $52.79 bbl, respectively.

   Although front-month WTI futures have retreated about 36% from their 2026 
peak of $112.95 bbl reached on April 7, Gulf Coast diesel crack spreads remain 
near the highest levels of the year.

   The divergence comes as refiners enter the period when middle-distillate 
inventories are typically rebuilt ahead of autumn agricultural demand and the 
winter heating season.

   Historically, refiners begin building distillate inventories during the 
second half of summer ahead of stronger diesel demand from the fall harvest 
season and winter heating needs, helping ensure adequate supplies during 
periods of peak seasonal consumption.

   According to the Energy Information Administration, PADD 3 distillate 
inventories increased 1.2 million bbl to 43.9 million bbl during the week ended 
July 3. This was 900,000 bbl above the same week the previous year. Despite the 
increase, inventories remained at their lowest level since the week ended May 
8, when stocks stood at 39 million bbl, EIA data showed.

   This year, however, that seasonal rebuild has progressed more slowly as firm 
domestic demand and strong export flows continue to absorb Gulf Coast 
production despite refiners operating at 96.5% of operable capacity. The Gulf 
Coast, which accounts for roughly 90% of U.S. distillate exports, continues to 
play a critical role in balancing both domestic and international diesel supply.

   Global supply constraints have added further support to diesel margins.

   Industry estimates reported by multiple media organizations indicate roughly 
28% to 33% of Russia's refining capacity remains offline following repeated 
attacks on energy infrastructure. Russia, the world's second-largest diesel 
exporter behind the United States, has also restricted diesel exports, 
increasing reliance on U.S. Gulf Coast supplies to help balance the global 
distillate market while some Middle East refining capacity also remains offline.

   Another factor supporting the market's tight supply outlook is the continued 
decline in emergency crude reserves. The U.S. Strategic Petroleum Reserve (SPR) 
fell to 319.5 million bbl during the week ended July 3, the lowest level since 
April 1983, according to EIA data. Government releases over the past several 
years have reduced emergency crude holdings to well below half of the SPR's 
storage capacity, leaving a considerably smaller strategic supply cushion than 
in previous decades.




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