The most crucial number for the trucking industry in the weekly Energy Information Administration statistical report was not favorable. But many others were.
With so much focus on the East Coast diesel market, the amount of inventories has been the main data point for determining whether any relief from the supply bottleneck is in the works.
The information in the weekly report was not favorable to the trucking business. Inventories of ultra-low sulfur diesel in the EIA’s PADD 1 region, which includes key East Coast markets, fell to 19.375 million barrels from 20.4 million barrels the previous week.
Comparisons of how low these values are in comparison to past figures are problematic because ULSD has only been the standard diesel product for around ten years. However, the most recent data are among the lowest in five to eight years.
Last week’s report was positive because it marked the first time in several weeks that East Coast ULSD inventories had increased. It raised the prospect of rising inventories. And, while the current figure is still higher than the PADD 1 inventory of 19.19 million barrels from two weeks ago, the fact that stockpiles fell again was unexpected.
“I did not expect it,” Commodity Research Group’s Andrew Lebow said of the drop. “The issue is resupply, and it appears that the only way to resupply is to ramp up refinery capacity and production.”
And much of the other news was beneficial for diesel customers. Among the numbers in the report that are encouraging for industries that utilize diesel:
– Refineries in the United States are operating normally. The country’s total refinery utilization rate was 93.2 percent. This is the highest level since the end of 2019. On the East Coast, utilization reached 97 percent, the highest since June 2018. However, the PADD 1 refinery capacity at the time was listed as around 1.2 million barrels per day. It is now 818,000 b/d. In just five weeks, East Coast refinery utilization has risen by nearly 13 percentage points.
— As a result of all that refinery operations, total distillate production in the United States, including diesel, was 5.137 million b/d. This is the greatest level since January 2020, when the country’s refineries would have been producing heating oil for the winter. Within that figure, US refineries produced 4.875 million b/d of ULSD, up from 4.69 million the previous week. It was the largest amount since August 2020.
— Total distillate exports increased to 1.124 million b/d, up from a little over 1 million the previous week. However, this is still lower than the 1.3 million to 1.5 million b/d it was running at a few weeks ago. Lebow stated that the arbitrage to export diesel to Europe has closed, and what is moving offshore today are likely deals executed when that window was open and traders could make that movement work. The most recent high-water mark for distillate exports — which are not broken out by specific distillate products in weekly reports — was 1.739 million b/d in the week of April 8.
Despite the tighter East Coast diesel market, the reaction in the physical diesel market was quite mild. According to benchmark administrator General Index, the margin between ULSD on the Gulf Coast and in New York Harbor fell for the third day in a row Wednesday, falling to 17.73 cents a gallon from 21.5 cents a day earlier. It has drifted in quite slowly over the last seven trading days, falling from a premium of 76 cents on May 16 to the latest amount.
The disparity between the Gulf Coast and the East Coast is a fair measure of the tightness in PADD 1. Historically, the New York price is a few cents more than the Gulf Coast pricing, but the recent squeeze drove it up to outrageous amounts that ranged between around 50 cents and 65 cents at the start of the month. Even with the EIA reporting tighter stockpiles, watching the spread reduce shows some relief from the East Coast inventory tightness.
On the CME commodity exchange, the futures price for June barrels of ULSD gained 9.56 cents per gallon to settle at $3.8644 per gallon, a 2.54 percent increase. The June contract has only two trading days left before expiration, and it is showing signs of a modest squeeze, far from the massive increase in front-month pricing that occurred as May barrels approached the contract’s closure.
The 2.54 percent increase in ULSD contrasts with a 0.9 percent increase in the price of RBOB gasoline, an unfinished commodity needed to manufacture finished gasoline. West Texas Intermediate crude was up 0.04 percent, while global petroleum benchmark Brent was up 0.54 percent.
