Benchmark diesel up 4 straight weeks, at highest price since early May

Since a low settlement of $2.2962 a gallon on June 3, the ultra low sulfur diesel (ULSD) price on the CME commodity exchange has climbed 28.29 cents, including a decline of 5.52 cents over the past two trading days to a Monday settlement of $2.5791.

ULSD prices Monday fell in part because Hurricane Beryl ultimately proved to be almost a total nonfactor for oil production or refining in the Gulf of Mexico. While some platforms had been shut late last week as a precaution and some ports were shut, which might back up imports and exports temporarily, there were no reports of refineries in Houston or Corpus Christi having been impacted by the storm.

Overall, oil prices looked like they might get a more significant boost last week when the EIA’s weekly inventory report showed U.S. crude oil stocks declining by more than 11 millions barrels, a significant one-week drop. But that did not occur as the market continues to look balanced at current levels after a bullish run.

There are no signs of any particular excess or shortages. U.S. production of ULSD has been holding near the average for the final weekly EIA report of June, excluding data from 2020. The average for that final week going back to 2017 is output of 4.9 million barrels a day; last week’s report showed U.S. output at 4.87 million barrels per day.

Inventories of ULSD are about normal. Measuring inventories as “days cover” — taking inventories, dividing it by average daily consumption and measuring stocks in terms of the number of days of demand that could be met by inventories alone — the figure stood last week at 32.2 days. That is roughly in line with where the final week of June generally comes in.

There has been recent tightening in some physical U.S. markets, where ULSD is traded as a differential to the CME ULSD price. 

On the Buckeye Pipeline system, which services the Northeast and Ohio Valley area, the spread between CME ULSD and physical product narrowed Monday to negative 5 cents a gallon, according to DTN, from a negative 19-cents-per-gallon spread June 18. Group 3, which encompasses central U.S. states such as Oklahoma and Kansas, tightened Monday to a negative 5.5-cents-a-gallon spread from negative 15 cents a gallon just a few days earlier.

However, the far larger New York Harbor and Gulf Coast markets were relatively stable. The other markets are much smaller in volume and have long been subject to more volatile swings.

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