Diesel margins say more about demand than crude does

Crude prices mix supply decisions, geopolitics and demand into one number. Diesel margins are closer to a pure read on activity, because diesel is what trucks, farms, ships and factories actually burn.

Why distillates tell the truth

The gap between the price of diesel and the price of crude is the refiner's margin on the most economically sensitive fuel. When that gap is wide, demand for diesel is running ahead of refining capacity. When it narrows, the economy is using less than refiners can make.

For an integrated major, wide diesel margins support refining profits even when crude is soft, which cushions the upstream business.

What I'm watching

• Diesel margins against their seasonal range
• Distillate inventories
• Refinery utilisation, which shows how hard the system is running

Where I stand

Long, on distillate margins signalling firmer demand than the crude price implies. The integrated model benefits from both readings being right.

What would change my mind

Diesel margins narrowing while inventories build. That is demand softening at the point of use, and it usually shows up before crude reflects it.