West Coast Diesel Differentials Continue To Surge This Week

Oil prices are seeing modest gains to start Wednesday’s session following a big decline in inventories, while refined products are seeing modest losses in the early going with a pair of bearish fundamental notes having ULSD lead the move lower once again. 

Adding to the downward pressure on distillates - that are currently trading down about 13 cents for the week - are reports that China will increase export quotas next month, allowing the country’s newly minted refineries to crank up their sales overseas. The $3.20 range still looks pivotal for ULSD futures as both Monday and Tuesday saw intraday trading below the weekly trend-line near that level, only to settle above. If that recovery trend continues, there’s a good chance of a big rebound in the back half of the week, but it will have to happen soon as we’ll see a 4 cent drop in values when October takes the prompt spot Friday.

The API reported a huge draw in crude oil inventories of more than 11 million barrels, while gasoline stocks increased by 1.4 million barrels and diesel stocks increased by 2.5 million.  The EIA’s weekly report is due out at its normal time this morning and will offer the first glimpse at the actual impact of the numerous refinery issues over the past week that have stirred up both futures and some cash markets.

West Coast diesel differentials continue to surge this week, with San Francisco, LA and PNW markets all trading at or above 50 cent premiums to futures. Gasoline premiums have been holding at high differentials of 60-70 cents over October RBOB futures as the region moves through its last month of summer-grade product with last year’s spike to $2/gallon premiums still fresh on many minds.

Hurricane Idalia reached category 4 status overnight before making landfall in Florida near the Big Bend Wildlife Management Area this morning as a major Category 3 storm. The landfall was roughly 160 miles north of Tampa Bay, which seems to be far enough to have avoided major damage as at least one Tampa Bay terminal has already resumed loading operations this morning. Meanwhile, other terminals across Florida such as Orlando, Jacksonville, Niceville and Pensacola all seem to be operating so far despite the threats of heavy rain and potential power outages.  More potential good news is that the latest projected path has the storm turning east faster than earlier projections which should lessen the time spent over the flood-prone Carolinas. 

We’re still 2 weeks away from the typical peak of hurricane activity, and the NHC is tracking 4 other storms in the Atlantic, though fortunately none of them looks to be a threat to make landfall in the US.

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