Production of ultra low sulfur diesel in the US reached an all-time high last week of just shy of 4 million b/d, the US Energy Information Administration said Wednesday.
Of the 3.998 million b/d in production for the week ending July 29, the US Gulf Coast accounted for a near-record 2.077 million b/d, EIA said.
The previous US record output was 3.986 million b/d for the week ending December 31, 2010 EIA data showed. That record came at the expense of low sulfur diesel and heating oil, which were declining for regulatory reasons. But one trader noted that those two diesel grades have stabilized since then, and heating oil production has even increased slightly.
ULSD is now the "flavor du jour," the trader said. "It's more of a function of the runs being up, as to why the ultra low production is higher."
The refinery run rate rose a percentage point to 89.3% for the US in total, 1.2 points higher to 88.5% in the Gulf Coast and 1.3 points higher to 96.9% in the US Midwest, EIA said.
At 12 p.m. CDT, the Gulf Coast ULSD differential was heard down 65 points to NYMEX September heating oil futures plus 2.35 cents/gal.
"There seems to be a little 'get-out-of-Dodge' today," the trader said. "I just think demand is down. On top of that, you have refinery runs at 90%. We haven't touched the 90s much this year."
Other traders who provide diesel to end-users have said ULSD demand has softened with the recent hot weather, with any extra buying for power generation not enough to offset lower trucking demand.
ULSD, introduced for on-highway use in 2004, took over dominance from low sulfur diesel, banned in 2010 except for exports and off-road uses like railroads. US refiners only produced 199,000 b/d of low sulfur diesel last week, which is at the average for its weekly 2011 production. At its peak in mid-2005, refiners produced 3.2 million b/d of low sulfur diesel.
Heating oil production, meanwhile, rose 98,000 b/d to 432,000 b/d last week, which is about 20% higher than average for 2011.
Market sources said the higher sulfur barrels remain in demand for export, especially to South America and the Mediterranean region. Both grades were heard roughly unchanged at minus 3.50 cents/gal for off-road low sulfur diesel and minus 4.25 cents/gal for USGC heating oil.
ULSD stockpiles were virtually unchanged at 104.23 million barrels nationwide, but down 1.4 million barrels to 36.3 million barrels in the US Gulf Coast, EIA said. The Midwest offset the USGC drop with a near-equal gain to reach 27.6 million barrels, EIA said.
US LSD stocks dropped 507,000 barrels to 10.7 million barrels, while US heating oil stocks gained 896,000 to 37.3 million barrels, EIA said.
