Diesel’s price decline Tuesday was historic; crude’s fall sets another record

ULSD’s sharp decline came as the market was digesting the shocking move Monday to negative prices in the May contract for West Texas Intermediate crude. While that contract moved back into positive territory Tuesday, it was its expiration day and the increase means little to nothing.

What was significant was the decline in the June contract for crude. It fell $8.87 a barrel to $11.57, a decline of 43.37%. That percentage decline is more than twice the size of the largest one-day decline in the history of the contract going back to 1983.

The same conditions that drove crude into negative territory Monday were present in the decline of prices Tuesday. First, the collapse in world demand that might be as much as 25-30% of pre-pandemic consumption. Second, the fact that crude supply is only gradually being reduced as a new OPEC+ deal kicks in and sheer economics closes wells. And third, the likelihood that the ability to store crude oil on land will have run out in the U.S. sometime next month.

Measuring the ability to store crude is difficult. Measuring the ability to store diesel is even harder. Much of the storage capability is at refineries, not public tank farms like the giant storage capacity in Cushing, Oklahoma.

Following the close of trading, the weekly American Petroleum Institute inventories were released to subscribers. Although the numbers are private, the most important data points are widely disseminated over Twitter. Although S&P Global Platts predicted a build in distillate inventories of 3.7 million barrels in the U.S. — distillates include ULSD as well as jet fuel and heating oil — the API numbers came in at a build of 7.639 million barrels.

The weakness in diesel is not just happening on the CME exchange. It’s also visible in the spread between key physical grades and the dated Brent global crude benchmark.

For example, comparing the price of ULSD in New York Harbor to dated Brent, that spread Tuesday stood at $16.97 a barrel. On April 2 it was $23.15.

ULSD for export in the Gulf Coast had a spread Tuesday of $11.94 per barrel. ON April 2, it was at $18.37. 

The weakness in physical diesel can be seen in wholesale rack prices, which have fallen slightly faster than the decline in CME prices through Monday. For example, the average ULSD wholesale rack price in Atlanta went from 94.13 cents a gallon Saturday to 85.29 cents on Tuesday while the CME price was dropping about 7 cents. But in Houston, the decline in rack prices was from 95.03 to 88.91.

As far as the market racing toward a storage armageddon, with no place else to put crude, a tweet published by the energy analytics firm of Kpler said the key delivery point of Cushing had less than 20 million barrels of crude storage remaining. The API statistics released Tuesday reported that Cushing inventories last week rose by 4.9 million barrels, which would mean that it would fill to tank tops in less than a month.

The Kpler tweet also said it estimates that storage in the region known as PADD 3, which includes the Gulf Coast, has another almost 70 million barrels to fill.