M6 BARRON’S October 26, 2020
fuels point to a slow economic recovery.
Diesel prices have been generally higher
than gasoline for the “better part of the
last two decades,” De Haan says, in part
because a barrel of crude oil typically
yields far less diesel than gasoline.
However, in “quite a rare feat,” diesel
prices have, in some cases, fallen under
gasoline. That hasn’t happened since ultra-
clean diesel was first mandated in 2007
and became more expensive to refine as a
result, he says.
At the wholesale level, where refiners
sell to retailers, gasoline prices have been
higher than diesel. Wholesale prices in
July for gasoline were running at $1.38 a
gallon, while diesel for on-highway use
was at $1.254, according to the EIA’s lat-
est figures.
At the retail level, however, the aver-
age gasoline price was at $2.15 as of the
week ended Oct. 19, below the $2.388
price for diesel.
Retail prices recently saw around a
20-cent difference, the lowest monthly
average since September 2017, according
to Cinquegrana.
The narrow price difference has a lot
to do with high U.S. diesel inventories, so
he believes it’s “more about hefty sup-
plies than a ‘yay or nay’ vote on the
health of the economy.”
It’s also difficult to figure out whether
price changes in diesel are due to economic
growth, to “changes in jet fuel demand, or
demand for heating oil, the latter of which
can be influenced by winter weather,” says
Richard Joswick, head of oil pricing ana-
lytics at S&P Global Platts.
“Gasoline demand is slowly recover-
ing, as is diesel, with the economy,” says
Joswick.
Still, the current relative weakness in
diesel is primarily due to the loss of de-
mand for jet fuel, and demand for that is
“likely to lag as both business travel and
leisure travel will probably be slower to
recover than other parts of the economy,”
he says.B
COMMODITIES
Diesel Market Points to
Weakness in Economy
T
he diesel market serves as a
barometer for the state of the
economy because the fuel is
widely used in the transporta-
tion industry. Right now the signals diesel
is giving off in terms of supply, demand,
and prices don’t point to a very promising
future.
“It’s the best fuel to see how the econ-
omy is recovering” since it’s a “fuel of in-
dustry,” says Patrick De Haan, head of
petroleum analysis at GasBuddy.
At the supply level, “diesel is far more
bleak than gasoline to a refiner,” he says.
U.S. gasoline inventories are under their
year-ago level, “thanks to strong discipline
by refiners,” but supplies of distillates,
which include diesel and jet fuel, are run-
ning “some 30% above year-ago levels.”
That’s “representative of a slowdown in
the economy and, certainly, air travel,”
says De Haan.
For the four-week period ended Oct. 16,
jet fuel product supplied, a measure of
demand, was down nearly 46% compared
with the same period a year ago, according
to the U.S. Energy Information Adminis-
tration. Given the weak demand, many
refineries have favored production of die-
sel over jet fuel.
Diesel demand has taken a hit on re-
duced economic activity, with fewer trucks
on the road and “thousands of school
buses [that] aren’t running,” says De
Haan. “Right now, diesel demand is
weaker and hasn’t seen the return gasoline
has, and that bodes poorly for the situation
going forward.”
Still, there have been signs of improving
demand, with diesel consumption starting
to move toward the four-week average,
“potentially indicating that the worst is in
the rearview mirror for the economy,” says
Denton Cinquegrana, chief oil analyst at
the Oil Price Information Service by IHS
Markit.
Meanwhile, prices between the two
By Myra P. Saefong
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