US diesel prices jump to six-month highs amid NYMEX rally as Midwest differentials falter

Outright diesel prices in most regions of the US popped to their highest levels since July following the largest single-day gain in the NYMEX M1 ULSD futures contract since Oct. 12, 2023.

At the end of the Platts Market on Close assessment process at 1:30 pm CT Jan. 10, the NYMEX M1 ULSD futures contract rose 12.35 cents/gal to $2.5017/gal, the highest level since July 15, 2024, at $2.5136/gal.

Market participants attributed the jump to the fresh sanctions announced by the US and the UK, which lifted the broader crude complex.

"I was shocked when I logged on," one refined products trader said. "I guess new sanctions on Russia and Iran are driving this diesel rally."

The US and the UK unveiled a fresh package of sanctions on Russia's energy sector Jan. 10, including new curbs on two major Russian oil producers, as the countries doubled down on a recent push to hit Moscow's oil revenues, which are being sustained by its shadow tanker fleet and "opaque" traders of Russian oil.

"With today's actions, we are ratcheting up the sanctions risk associated with Russia's oil trade, including shipping and financial facilitation in support of Russia's oil exports," US Secretary of the Treasury Janet Yellen said in a statement.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Gulf Coast ULSD differential 0.80 cent/gal lower to a 9.15 cents/gal discount to the M1 futures contract, a monthly low, while the outright price gained 11.55 cents/gal to $2.4102/gal, the highest level since July 18, 2024, at $2.4143/gal.

Similar price action was observed in the Atlantic and West Coast markets, with the Colonial Pipeline ULSD differential assessed at Linden, New Jersey, rising to flat to the M1 ULSD futures contract, a two-month high, while the outright price was at parity with the futures contract at $2.5017/gal, the highest since July 15, 2024. Los Angeles diesel was assessed unchanged at a 5 cents/gal premium to the M1 futures contract, while the outright price rose 12.35 cents/gal to $2.5517/gal, the highest level since July 8, 2024.

Trading activity in the Platts Market on Close assessment process for the benchmark Gulf Coast diesel grade was thin all week but came to life Jan. 10 after 550,000 barrels were traded, indicating demand may be coming back after a winter storm swept across much of the US earlier this week.

The Midwest has not seen the same outright price rally as differentials in the region were crushed over the past week, with market participants attributing the differential decline to a drop-off in demand amid the winter storm.

"It's a demand story, or the lack thereof," one Midwest refined products broker said. "It's looking ugly. Just no demand here in the Midwest after the ice and snow this weekend, and of course, the cold weather."

"Demand isn't great, refinery runs are up, and the weather in Oklahoma and Texas this week should weigh on demand as well," a Midwest refined products trader said Jan. 7.

The Group 3 X-Grade ULSD differential slid another 1.25 cents/gal Jan. 10 to a 32.50 cents/gal discount, bringing the weekly decline to 13.70 cents/gal and the lowest assessment since Feb. 6, 2024. Meanwhile, the Chicago generics assessment, which includes Badger and Westshore pipelines, has fallen 11.75 cents/gal since Jan. 6 to a 41.50 cents/gal discount, its lowest level since Jan. 31, 2024.

Meanwhile, nationwide ultra low sulfur diesel inventories jumped 6.376 million barrels to 121.534 million barrels for the week ended Jan. 3, the highest level since Jan. 26, 2024, when inventories totaled 122.127 million barrels, the latest Energy Information Administration data released Jan. 8 showed.

The Midwest led the gains, rising 2.918 million barrels to 32.458 million barrels, the highest level since June 7.