ULSD Futures Are Continuing To Slide This Morning, Continuing Their Technical Meltdown

Gasoline prices are seeing modest gains in the early going after reaching fresh lows for the year in Wednesday’s session. An attempted rally Wednesday morning lost momentum mid-day, leading to more heavy losses across the petroleum complex.  

ULSD futures are continuing to slide this morning, continuing their technical meltdown despite the bounce in crude and gasoline contracts. It feels like we’re witnessing healthy liquidations from the big money managers this week, although we won’t get confirmation of that until next Friday’s COT report. 

Since the DOE didn’t publish its inventory figures this week, we’ll take a look at the California Energy Commission weekly statistics to make sure everyone gets their chart fix. 

Gasoline inventories in the republic of California ticked higher on the week as refiners increased output by roughly 100mb/day. Northern California CARBOB stocks are holding near the top end of their seasonal range, while Southern California gasoline inventories are near the bottom end of their range. CARB diesel stocks saw a large decline on the week, with a similar pattern of Northern CA markets seeing inventories closer to the top end of their range, while Southern CA has inventories near the low end of the range. That dynamic probably helps explain why there’s still a 30-cent spread between LA and San Francisco diesel prices, even after bay area differentials jumped 15 cents yesterday.

One point of confusion on both the California and Federal inventory reports is it seems that the rapidly increasing inventories of Renewable Diesel are not being captured in the numbers.  The DOE’s weekly survey does not have a line for renewable diesel and California’s “Other Diesel Fuel” category is specific to “EPA” diesel that’s bound for export to other states and countries.  Based on the survey definitions, it’s safe to say that the actual usable distillate inventories and demand are being understated due to this phenomenon.

While West Coast basis values are rallying once again, we’re seeing more downside pressure in the Gulf Coast basis values as refiners are having a harder time finding a home for their output.  A softer export market seems to be backing barrels up into the Gulf Coast, pushing up premiums for Colonial line space as shippers who had become accustomed to sending 20% of local production overseas suddenly need to find a domestic home for their excess output.  

Turn the trucks around: just a couple of weeks after Group 3 diesel prices were fetching 50+ cent premiums to neighboring Chicago-based markets, inducing an east-west location arbitrage, those spreads have now flipped with Chicago holding a 35-cent premium, incenting long hauls in the opposite direction after a pair of IL refinery hiccups over the past week. Chicago market historians and spreadsheet enthusiasts alike will note that this unusual price spread comes 1 year to the day from when Chicago land prices reached a 40-cent premium to neighboring markets.

Not going anywhere for a while? An auction to skip the growing logjam of ships waiting to cross the Panama Canal Wednesday fetched $4 million from the “winning” ship owner. 

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