By John Kingston of FreightWaves.com
The trucking sector’s most important statistic in the weekly Energy Information Administration statistical report wasn’t a good one. But a lot of others were.
With so much focus on the diesel market on the East Coast, the level of inventories has been the key data point to determine whether any easing of the squeeze in supplies is in sight.
The information in the weekly report was not positive for the trucking industry. Inventories of ultra low sulfur diesel in the region that the EIA calls PADD 1, which contains the key East Coast markets, declined to 19.375 million barrels from 20.4 million barrels a week before.
Comparisons of how low these figures are relative to historical figures are difficult in that ULSD has only been the standard diesel product for roughly 10 years. But the latest figures are some of the lowest of the past five to eight years.
Last week’s figure was encouraging, because it marked the first time in several weeks that East Coast ULSD stocks had risen. It raised the possibility that inventories were headed up. And while the latest report is still more than the PADD 1 inventories of 19.19 million barrels from two weeks ago, the fact that stocks went down again was a surprise.
“I did not expect it,” Andrew Lebow of Commodity Research Group said of the decline.
“The problem is on resupply, and it looks like the only way we’re going to resupply is to ramp up refinery capacity and production.”
And that’s where most of the other news was positive from the perspective of diesel consumers. Among the statistics in the report that are hopeful for industries that use diesel:
U.S. refineries are cranking away. Total refinery utilization for the country was 93.2%. That’s the highest level since the end of 2019. On the East Coast, utilization was 97%, highest since June 2018. However, PADD 1 refinery capacity at that time was listed at about 1.2 million barrels per day. It’s now 818,000 b/d. East Coast refinery utilization is up almost 13 percentage points in just five weeks.
The end result of all that refinery activity is that total distillate production in the U.S., including diesel, was 5.137 million b/d. That is the highest since January 2020, when the country’s refineries would have been making heating oil for the winter. Within that number, U.S. refineries produced 4.875 million b/d of ULSD, up from 4.69 million a week earlier. It was the highest number since August 2020.
Exports of all distillates rose to 1.124 million b/d from just over 1 million last week. However, that is still down from the range of 1.3 million to 1.5 million b/d it was running at a few weeks ago. Lebow noted that the arbitrage to export diesel to Europe is closed and what is moving offshore now would likely be deals completed when that window was open and traders could make that movement work. The recent high-water mark for distillate exports — they are not broken out in the weekly reports by specific distillate products — was 1.739 million b/d the week of April 8.
Despite the tighter East Coast diesel market, the reaction in the physical diesel market was relatively muted. According to benchmark administrator General Index, the spread between ULSD in the Gulf Coast and in New York Harbor narrowed for the third day in a row Wednesday, tightening to 17.73 cents a gallon from 21.5 cents a day earlier. It has moved in relatively steadily for the past seven trading days, dropping from the New York Harbor number holding a premium of 76 cents on May 16 to the latest number.
The spread between the Gulf Coast and the East Coast is a good indicator of the tightness in PADD 1. Historically, the New York price is a few cents more than the Gulf Coast, but the recent squeeze drove it up to astronomical numbers that at the start of the month swung between about 50 cents and 65 cents. Watching the spread narrow, even in light of the tighter inventories reported by the EIA, suggests some level of easing in the East Coast inventory squeeze.
On the CME commodity exchange, the futures price for June barrels of ULSD rose 9.56 cents a gallon to settle at $3.8644 a gallon, a gain of 2.54%. The June contract has only two more trading days before its final day, and it is showing signs of a mild squeeze, far from the enormous surge in front-month pricing when May barrels headed toward that contract’s close.
The 2.54% gain in ULSD contrasts with a 0.9% increase in the price of RBOB gasoline, an unfinished product used to make finished gasoline. West Texas Intermediate crude was up just 0.04%, while global crude benchmark Brent increased 0.54%.