East Coast diesel consumers received some news on Wednesday that may indicate an easing of tight physical market pressures in the region.
In the weeks since the east coast diesel market has outperformed the rest of the country, there has been head fakes suggesting markets are softening. But they proved short-lived as the weekly nationwide average retail diesel price released Monday by the Energy Information Administration was $5.613 a gallon. The East Coast price was up 33.1 after a three-week surge that took the spread from 4.9 cents on April 25 to 19.2 cents the following week and 28.4 cents a week later before the final jump cents higher.
In the past, the spread has bobbed up and down enough above zero that it is fair to say that there is little difference between the two. The recent spread is an anomaly, although it’s costing East Coast motorists a lot of money.
But among the data in the EIA’s latest weekly report, released on Wednesday, there were several figures that suggest there is reason to believe the pressure may have eased.
The stocks on the east coast were the main reason for the bottlenecks. But the latest report shows stockpiling is surfacing.
Stockpiles of ultra-low sulfur diesel in the east coast, designated by the EIA as PADD 1, rose 1.21 million barrels to 20.4 million barrels last week. ULSD’s PADD 1 stockpiles on the East Coast had declined for 13 of the previous 15 weeks and declined for six straight weeks before the EIA recorded a rise on Wednesday.
Stock levels remain well below historical norms. If the inflated numbers of 2020 are not counted, the average size of PADD-1 ULSD stockpiles in the second weekly report of May over the last five years is 36.8 million barrels. This means that even after the recent spike, East Coast ULSD stocks accounted for just 55.4% of that five-year average.
The prices on the spot and futures markets could also give consumers a glimmer of hope. ULSD was trading at $3.6681 a gallon on Monday, down 13.12 cents on the day. It’s the lowest settlement since April 12, and since early May, the ULSD is down more than 53 cents, including a drop of more than 25 cents over the past three trading days.
The decline was also notable for outperforming crude oil and RBOB, an unfinished gasoline blendstock used as a proxy for gasoline trading. This trend continued for most of May. On the first trading day of the month, a barrel of ULSD was worth about $69 more than a barrel of Brent crude. This spread has narrowed to around $47.65.
The weekly data report included other numbers that could suggest the worst on the East Coast may be over, though there’s still a long way to go back to some semblance of normality.
— U.S. refineries were running at 91.8% capacity. This is the highest level since August 2021. Nameplate claims for capacity used by the EIA have been reduced over the years, but are only down about 1% since last August. On the east coast, the refineries were running at 95%. East Coast refineries have not been running at 95% or more since May 2018, and instances of this are generally rare. But it’s a different world on the East Coast: Usable capacity in 2018 was 1.224 million barrels per day. It is now listed as 818,000.
– Inventories of all distillates, including diesel but excluding jet fuel, rose to 105.3 million barrels from the country’s 104 million barrels a week earlier. National ULSD inventories rose to 95.2 million barrels from 94.6 million, although PADD 1 is up more than 1 million barrels, calculating the total national increase means the country outside of PADD 1 has declined.
— Total distillate in inventories increased even though the country was consuming more product. Products shipped in distillates – mostly diesel but also some other products such as heating oil – rose to 3.816 million barrels a day from 3.777 million the week before. It’s still 243,000 barrels per day down from a year ago, about 5.9%, although jet fuel consumption, which comes from the same pool of distillate feedstocks as diesel, is up 439,000 barrels per day, a 37% jump . The total amount of distillate molecules demanded for various applications is increasing and this week’s rising stock levels suggest that this demand has been met without a significant drop in stock levels.
— Exports of distillates fell. Exports in the EIA Weekly Report are not broken down by specific product such as ULSD. But exports of diesel have been cited as the cause of the East Coast shortage. Total exports of non-jet distillates fell to just over 1 million barrels a day last week. It’s the lowest export figure in the last eight weekly reports, where exports hit as much as 1.74 million barrels a day a month ago. However, this is partially offset by the fact that ULSD’s imports — unlike exports, specific import figures by product category are available — were at the fourth-lowest weekly level they’ve seen all year.
“Distillate exports have been strong up until this week and refinery runs are up and running,” said Argus Media’s Stephen Jones. Despite speculation about the destruction of demand, Jones noted that demand figures in the EIA report were up about 1% from the previous week.
Jones said that in addition to higher refining runs in the US, European refining runs are running about 1.5 million to 2 million barrels a day more than in March and April. Runs are increasing as the region deals with the impact of lost Russian oil due to sanctions including reducing diesel exports from Russia. “They’re going to be making more diesel and gasoline, and the sanctions might fall short and not have that much of an impact on the supply shortfall,” Jones said. “We could end up with a significant surplus of petrol for the European market and a good supply [European] distillate market.”
In physical markets, East Coast diesel versus Gulf Coast diesel premium narrowed for the second day in a row. According to benchmark administrator General Index, its valuation for ULSD in New York Harbor was about 22.25 cents higher than the price on the Gulf Coast. A day earlier it was 35.75 cents, which would superficially suggest East Coast shipments are slowing compared to the Gulf Coast.
However, this market tightened for a few days last week before breaking out again. It opened the week with a spread of about 66 cents in favor of the East Coast, according to General Index estimates, coming in as low as 33.5 cents and then declining back to 76 cents on Monday. The reversal has lowered the spread by about 53 cents.
The various downward signs in the diesel market have not yet arrived at the pump. The DTS.USA dataset in FreightWave’s SONAR shows that the nationwide retail average rose to $5.621 a gallon on Wednesday, up from $5.577 a week ago.
However, wholesale prices react quickly to movements in the diesel spot market. The national average diesel wholesale price, as reflected in the ULSDR.USA data series in SONAR, was $4.234 per gallon on Wednesday. Just two days earlier it was $4.404 a gallon and on May 3 it was $4.718 a gallon.
Retailers have been slow to lower prices, possibly because they have been so shaken up by rapidly rising and falling prices that they are reluctant to follow any wholesale price moves down. But the bottom line is strong retail margins, according to SONAR’s FUELS.USA data series, which came in at $1.387 a gallon on Wednesday, well above normal rates of $1 to $1.05 a gallon. FUELS.USA represents a direct difference between wholesale and retail prices.
More items from John Kingston
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The East Coast diesel market is of increasing concern as inventories fall
Diesel prices are rising above crude oil and gasoline and are likely to remain so
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