By Stephanie Kelly
NEW YORK (Reuters) - The U.S. diesel market is weakening as the nation's economy crashes, cutting demand for the refined product that had until recently been a lifeline for refiners dealing with the sharp fall in gasoline and jet fuel consumption.
U.S. demand for diesel, which fuels farming equipment and trucks that haul goods across the country, had held up relatively well as governments ordered residents to shelter in homes to curb the spread of the new coronavirus that has killed more than 30,000 people nationwide.
Refiners responded to trucking and farming demand by increasing their slate of diesel as processing margins remained higher.
However, diesel consumption is falling now as well. The four-week average of diesel product supplied - a proxy for consumption - fell to just under 3.9 million barrels per day last week, lowest for the start of April since 2016, Energy Information Administration data showed on Wednesday.
That represents an 8% decline from the year-ago period. Gasoline demand, by contrast, is off by 32% in that same time period. Wednesday's figures for last week showed diesel demand fell by 28% - which, if it persists, shows that deliveries may be starting to decline as the economic pain deepens.
"With job losses mounting, there are nearly guaranteed fewer goods being transported by trucks," said Patrick De Haan, head of petroleum analysis at GasBuddy. "It's a bellwether for the economy, and it doesn't look good."
GRAPHIC: U.S. diesel demand weakens with coronavirus spread https://reut.rs/3ei38CG
Margins to refine distillates have fallen since the end of March and now sit at $18.43 a barrel, lowest since 2017, Refinitiv Eikon data showed.
Fuel demand has dropped by roughly 30% nationwide, and numerous refiners are idling units and cutting runs to deal with the excess product. But their shift to producing more diesel is increasing supply, a concern as storage space dwindles. Distillate inventories rose to 129 million barrels, the most seasonally since 2017, the EIA said.
In the Midwest, where diesel use is heavy in planting season, storage has started to become an issue, traders said.
"There's still storage, but we're near all-time highs," one market participant said about the Group Three market, which serves the Midwest.
GRAPHIC: U.S. distillate stocks gain as demand drops https://reut.rs/2VwTUKf
That is translated to lower prices in the spot market. Chicago ultra-low sulfur diesel cash differentials this week fell to 26 cents a gallon below futures, lowest seasonally since 2012.
In the Gulf Coast, prices fell to 8.75 cents a gallon below futures, also the lowest since 2012.