ULSD hits record highs for USGC, IPP prices as Latin America cargo demand surges

US Gulf Coast ULSD exports to the region ranging from Mexico to Argentina are once again in full swing, helping push Gulf Coast assessments and Latin America import parity prices to record levels June 16.

Platts assessments for USGC ultra low sulfur diesel pipeline rose 2.39 cents/gal to $4.5509/gal, or $191.14/b, on June 16, breaking for a second straight day the previous record of $4.4974/gal on May 2. The Gulf Coast ULSD benchmark first popped past its mid-2008 record on March 8, when it hit $4.4813/gal after the Russian invasion of Ukraine. This is the third price spike wave sinceMarch 8, but prices have generally remained higher since then than any other time since 2008.

Already considered the factory floor for the world's refined products, the Gulf Coast doubled down on that image as it tried to replace supply lost from Russia to most markets.

US diesel exports surged 15% week on week to 1.38 million b/d during the week ended June 10, according to data released by the US Energy Information Administration June 15. Sources said a lot of that demand was coming from Latin America, where subsidized pump prices have largely negated any demand destruction otherwise expected to occur..

Platts' import parity prices for Peru rose $4.71/b to $195.63/b for ULSD June 16, breaking the May 4 record of $192.95/b, which itself was a peak of a run that beat the previous record of $177.68/b March 8. Colombia IPP prices rose $4.57/b to a record $188.11/b, while Brazil IPPs for ULSD rose $6.30/b to 197.76/b in Santos and jumped $6.30/b to $203.94/b in Betim, the record for the Brazil IPPs.

"Everybody is concerned," said Felipe Perez, Latin America downstream strategist for S&P Global Commodity Insights. "I don't see a physical shortage yet ... But demand hasn't dropped."

He noted several events that could make the situation even worse for the Americas, such as a European ban on Russian diesel, a US export ban on refined products "and hurricane season in the United States. Then it could be a mess."

Latin America has developed several coping methods for the high prices and volatility in the waves of diesel price spikes, including canceling tenders, reducing cargo volumes in tenders, asking for quicker delivery and paying premiums.

But the latest tender for Petroecuador showed some signs of relief. Petroecuador awarded Trafigura the purchase tender June 17 at an 82 cent/b premium, with other offers by BB Energy at a $4.49/b premium and Glencore at a $4.85/b premium, a company award document said. One source said the top offer came in lower than previous buy tenders, but "there is a big difference between Trafigura and the other offers." BB Energy was awarded Petroecuador's last diesel contract for seven 280,000-barrel cargoes, with deliveries beginning May, S&P Global Commodity Insights reported earlier. The pricing basis was at a $4.68/b premium to the Platts US Gulf Coast ULSD pipeline assessments.

A shipping source said cargo loadings, especially for diesel, have picked up "without a doubt" from the US Gulf Coast lately, as has happened before and during past price spikes, although this time Europe is not a big demand destination.

"It's another busy day on USG cargoes," he said June 16. "The June 23-25 fixing window is busy to LatAm and Mexico. We're missing the trans-Atlantic cargoes, though. I saw two TA cargoes; everything else is going south."