Refiners Are Making More Diesel Than Farmers and Truckers Need

Refiners in the U.S. are making diesel fuel faster than truckers and farmers can burn it.

While jet fuel and gasoline demand—and prices—plunged at the start of the pandemic with driving and flying largely shut down, diesel was more resilient as delivery trucks stayed on the roads. That’s changed now, however, as refiners shifted to make more diesel and some states start to open up, boosting gasoline consumption.

Diesel futures’ premium of almost 65 cents a gallon over gasoline has disappeared over the past month, and now the trucking fuel is at the biggest discount since 2017. Inventories are building even as demand to ship fuel on pipelines into the Midwest has been heard to strengthen this week as planting accelerated.

“Will the tractors be able to burn fuel faster than the refiners can make it?” Midwest and Gulf Coast fuels broker Steve Mosby said earlier this week. “Man, I don’t know about that.”

It may not be enough to stem a growing glut. The U.S. Energy Information Administration said stocks of distillate—which includes diesel for trucks and home heating fuel—last week were at a near-three-year high.

Reblending Jet Fuel

Part of the buildup has come from refiners turning jet fuel, which is chemically similar, into diesel as planes sit parked at airports across the country. Production of jet fuel was the lowest since the government began publishing weekly data in 1990, while distillate output increased to the highest since January.

“The jet demand disruption was just so severe, and everyone started blending jet into diesel, it caused the diesel yield from refineries to be really at record levels,” Gary K. Simmons, chief commercial officer of Valero Energy Corp., said on an earnings call. “Even despite the lower refinery utilization, we’ve seen diesel production outpacing demand.”

As of earlier this week, 51% of U.S. corn was planted. That’s up from only 21% at the same point last year, when record flooding beset sowings, and the five-year average of 39%, according to Department of Agriculture data. For soybeans, the second-most widely planted American crop after corn, plantings were 23% complete, ahead of 5% a year ago and 11% on average. A late cold snap may slow planting next week.

“Heavy planting has continued across the Corn Belt this week and for corn, seeding could be in the later stages by next Monday,” Karl Setzer, analyst at AgriVisor LLC, said in an email.

A flood of diesel cargoes from Asia has boosted stockpiles in Europe. Gasoil stockpiles in the Amsterdam-Rotterdam-Antwerp supply hub jumped the most since September 2018, according to Insights Global.

Demand is also shrinking in Mexico, a major customer of U.S. diesel. More than 10 ships holding some 3 million barrels were waiting off the port of Pajaritos to drop off U.S. diesel and jet.

The drop in diesel demand probably confirms the U.S. has entered the recession, said GasBuddy fuels analyst Patrick DeHaan.

“Now you are starting to see the ramifications from the jobless rate,” he said. “Commerce is grinding to a halt.”