Diesel Crack Margins Spike to a Decade High
Crude traded Monday’s negotiation headlines and a crowded positioning washout, while refined products continued to price prompt shortages. I argued after Friday’s 3.88% fall in Brent to $96.78/bbl that the selloff had come too early. Monday’s further $8.07/bbl, or 8.34%, decline to $88.71/bbl shows I was wrong on timing. I underestimated how exposed crude had become to forced liquidation. Brent managed money remained net long 192,031 contracts at the end of the July 21 reporting week, despite selling 236,673 contracts worth approximately $22.9 billion, while open interest fell by 395,696 contracts. The negotiation headlines gave the market a trigger to punish the remaining longs. The product thesis remains intact. August heating oil fell only 0.51% to $4.1593/gal, lifting its crack against WTI to $91.74/bbl. August ICE gasoil fell 1.03% to $1,222.25/mt, yet August-September backwardation widened to $61/mt, August-December reached $238.25/mt and August-March 2027 reached $318.75/mt. Crude is clearing speculative length. Diesel is pricing physical scarcity. Long diesel against crude remains the cleaner exposure.
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