Diesel Inventories in the US Saw Another Healthy Build Last Week

It’s a mixed bag for energy markets Thursday after a furious rally Wednesday and a short-lived pullback overnight. WTI broke through the $80 mark for the first time since August during yesterday’s rally, while ULSD prices are trading at their highest levels since July.

Colonial reported Wednesday that its line 1 would be down through Friday, which would mean a hard stop for at least 4 days if it does come back online Saturday. That delay in the country’s most important gasoline delivery system is causing short term outages at a handful of terminals along the line, and on the stub line locations it’s impacting both diesel and gasoline supplies due to a lack of push stock. Compared to past events however, the impact on gasoline prices has been minimal, and RBOB futures haven’t even kept pace with distillates the past two days. As long as the line comes back up Saturday this should end up being a relatively minor disruption, but if it doesn’t, expect to see photos of people filling Tupperware with gasoline to start circling next week.

Cease the cease fire? After much of the world celebrated news of an agreement between Israel and Hamas Wednesday, and two different US Presidents took credit for it, the deal was delayed overnight.

PBF is working on its AQMD frequent flier points, reporting 2 more unplanned flaring episodes at its Torrance CA refinery, after notifying regulators it would need a week of flaring to get unit(s) back online after an episode on January 6th. LA CARBOB basis values did see a slight pullback yesterday after rallying nearly 20 cents earlier in the week due to the variety of refining upsets reported.

Diesel inventories in the US saw another healthy build last week, despite the annual recovery in demand the 2nd week of the year as businesses return to work. A drop in exports contributed to the inventory builds, and will be a point of concern for refiners who are reliant on sending barrels overseas to clear their production. While the recent runup in diesel prices has aided crack spreads, it also threatens to close some arbitrage windows and start backing up barrels into the USGC.

Speaking of backing up barrels into the Gulf Coast: The premium to lease space on Magellan’s line from Tulsa OK to Frost TX was talked around 8 cents/gallon Wednesday as shippers raced to try and take advantage of the 35 cent discount of Group 3 ULSD to USGC. Group diesel finally found a bid after reaching a 43 cent discount and ended the day with differentials talked about a nickel higher.

Gasoline inventories also saw a healthy increase last week, following their typical seasonal pattern despite a pullback in refinery runs.

PADD 3 saw the biggest decrease in output, with issues at both Valero and Total facilities in TX the week prior likely to blame. Lyondell is expected to begin the shutdown of its Houston Refining facility next week, so we’ll see another 260mb/day taken out of the PADD 3 numbers over the following month. Both PADD 2 and 3 saw small increased in refining capacity in the most recent DOE report, with upgrades made in 2024 finally hitting the official figures. The Lyondell shutdown isn’t likely to show up on the official capacity reports for several months due to the DOE’s reporting methodology. See charts attached.

The IEA increased its demand estimates for the past quarter in its latest monthly update, citing a combination of low fuel prices and cold weather driving the consumption increases. Global refinery runs were estimated to reach their highest level in 5 years (the start of COVID) in December. The report also cited the challenge to logistics in 2025 with 160 tankers targeted in the most recent round of sanctions announced January 10th.