US diesel production reaches five-year high: EIA

Ultra-low sulfur diesel production jumped 214,000 b/d to 5.153 million b/d, the highest level since Jan. 4, 2019, when US production totaled 5.177 million b/d, according to the latest Energy Information Administration weekly data.

The rise was led by a 96,000 b/d increase to 1.280 million b/d in the Midwest followed by a 72,000 b/d increase to 2.980 million b/d in the Gulf Coast, the data, released Dec. 4, showed. This marks the highest production level since June 7 in the Midwest and July 5 for the Gulf Coast.

Inventories also rose, swelling 3.125 million barrels to 109.719 million barrels, led by a 1.621 million-barrel gain to 26.812 million barrels in the Midwest, a monthly high, and a 1.303 million b/d gain to 33.544 million barrels, a two-month high, along the Atlantic Coast. Gulf Coast inventories slid 230,000 barrels to 34.979 million barrels, declining from a three-week high.

In the latest North America Short-term outlook released Nov. 25, SPGCI analysts noted Atlantic Coast diesel imports have remained at or near five-year lows as healthy stocks supplied by the Gulf Coast have made imports uneconomical. The report also noted a warmer-than-expected start to winter in the northeast had dampened heating oil demand, which typically draws inventory levels.

Diesel cracks have also been strong in the northeast, incentivizing refiners towards diesel production and away from jet production. Atlantic Coast diesel crack spreads against dated Brent have risen from a $14.51/b average in September to $18.90/b in November. As of Dec. 4, the diesel crack was $15.6/b while Jet was $12.21/b.

The rise in Atlantic Coast inventories and decline in Gulf Coast inventories could be a result of increased Colonial Pipeline loadings. Market participants have noted an increase in CPL loadings in recent weeks as traders and schedulers look to get ahead of the end of year selloff typically caused by Texas' ad valorem taxes, which also causes the pipeline to reach full allocation.

Another reason for the decrease in Gulf Coast inventories despite the production increase could be an increase in exports. The S&P Global Commodity Insights Refined Products ArbFlow tool shows the arbitrage to move barrels from the US Gulf Coast to Europe has been open since Nov. 11 when there was a $0.65/b incentive to move barrels from the USGC to Northwest Europe. The arbitrage opportunity peaked at $1.55/b on Nov. 14 and was most recently open by $1.16/b on Dec. 3.

Northwest Europe took 10.3 million barrels of Gulf Coast gasoil and diesel in November, up from 8.8 million barrels in September and October, but down from the record 11.5 million barrels moved along the trade route in August, S&P Global Commodities at Sea data shows.

South America also takes a plethora of Gulf Coast barrels, with November imports totaling 15.3 million barrels, the highest in at least the past 12 months.

All these factors could be lending support to Gulf Coast diesel prices which have remained steady while December swaps have risen significantly over the past two-months. At the end of October, December swaps were trading around minus 13 cents/gal but have risen to minus 9.50 cents/gal as of Dec. 5.

Platts assessed the benchmark Gulf Coast ULSD differential 0.65 cent/gal lower to an 8.90 cents/gal discount to the M1 ULSD futures contract while the outright price was assessed 1.82 cents/gal lower to $2.0667/gal.

Platts is part of Commodity Insights.