Refining margins for diesel and gasoline have climbed to record or near-record levels even as crude oil trades around $90 a barrel, and analysts warn the squeeze is starting to reach truckers and consumers. The gap, known as the crack spread, reflects a supply crunch tied to the ongoing U.S.-Iran conflict rather than the price of crude itself.
The margin refiners earn on turning crude oil into diesel topped $100 for the first time ever this week, even as crude oil itself trades around $90 a barrel. Energy traders call this margin the "crack spread" — the gap between the price of a barrel of crude and the price of the fuels refined from it.
The gasoline crack spread has topped $50, according to Denton Cinquegrana, chief oil analyst at Dow Jones Energy, with jet fuel and heating oil spreads also surging. Daniel Sternoff, a fellow at Columbia University's Center on Global Energy Policy, said the crisis is unfolding through refined products rather than crude oil itself.
Refiners run near capacity, still fall short
The conflict between the U.S. and Iran has disrupted crude flows through the Strait of Hormuz and cut off refiners in the Persian Gulf, pushing American refiners into the role of supplier of last resort for gasoline and diesel. U.S. refineries ran at 97.2% of capacity in the week ended Aug. 14, well above the more typical 90% rate, yet the extra output still hasn't offset lost Gulf supply.
Attacks on refineries in Saudi Arabia and Russia have added to the strain, and Russia has extended its own ban on diesel exports to protect domestic supply. Meanwhile, U.S. gas-station foot traffic has fallen about 4% year over year as drivers cut back, analysts at Jefferies said, citing proprietary data.
Trucking industry braces for fallout
Rising diesel costs threaten to hit trucking hardest. Joel Sutherland, a professor of supply-chain management at the University of San Diego's Knauss School of Business, said the ripple effect will reach virtually all industries. Some 90% of licensed U.S. common carriers run 10 or fewer trucks, and most are struggling to stay afloat, he said.
Larger carriers can absorb costs longer, but as smaller operators pass along higher prices, the impact eventually reaches consumers and could force some companies out of business, shrinking trucking capacity and raising shipping costs further. According to Sutherland: "the impact will cause significant supply-chain stress, in virtually all essential industries"
Source: MarketWatch
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