Many refer to Diesel as being the backbone of the American Economy. Trucks, trains, equipment, and ships all rely upon diesel for power. So when a blowout happens, it can affect mostly all aspects of our daily lives - from the food we buy, to the clothes we wear, and even the way we operate our businesses, even if those blowouts are short lived.
Since last Thursday we have seen the spread between future prices and cash prices grow to $.80 on Monday only to subsequently fall to $.55 yesterday. (see chart below). Tuesday and Wednesday saw diesel values weaken as deals appeared to be getting done for physical product delivered into New York Harbor.
The Northeast continues to see distillate inventories hover around precariously low levels as a new round of SPR releases were announced this morning. This appears to be the path that Government Officials want to take but some don’t believe it to working for us New Englanders and distillate users, although Crude and Gasoline are relatively stable. Rather than releasing crude, some suggest releasing finished diesel reserves to calm markets as the backlog in the refining process and subsequently exporting the finished goods at a higher rate than selling domestically is only prolonging the recovery process. Capping or limiting exports looks to be off the table as it could throw global markets into a spiral and appears to be Politically too risky.
While Heat and Diesel values appear to be correcting (knock on wood!) we are still almost $1 higher than the beginning of the month. I would expect the next several days to be very choppy in terms of prices. Today as an example ULSD started down over $.04 and at present is up almost $.02, not even taking into account what cash markets will actually do. I cannot stress enough how important it is, and will be, to have a strong relationship with your supplier during these times. Having various contracted supply points, along with the ability to get you product, will likely be a defining characteristic over the next several months.