US Gulf Coast distillate spot markets slipped Friday, with the export market seen calming down despite the widening of an arbitrage to Europe.
Platts assessed ULSD down about a quarter-cent on a new Colonial Pipeline cycle to NYMEX December heating oil futures minus 25 points/gal. It traded 10 times for 325,000 barrels, with Valero and Shell doing most of the buying and Morgan Stanley, Lukoil and Vitol most of the selling.
One trader said the low stocks haven't translated into heavy buying as much as provided support for a market still struggling with backwardation in the underlying NYMEX.
"Backwardation is a killer," a second source said. "It keeps the market on the edge of its seat."
Other sources said Europe is providing additional support, with a previously slim arbitrage opening wider and gasoline cargoes arriving from Europe looking to haul back ULSD. "It beats the hell out of going back empty," a third source said.
But shipping sources said the record pace of Gulf Coast cargoes -- 912,000 b/d, according to government data -- has slowed down this week. "In the US Gulf, we have seen several ships failing and there are ships looking for employment," one shipper said.
Declining demand in Latin America may be to blame, as 60% or more of US distillate exports tend to head south. Brazil, especially, has reduced demand as it ends a big harvest season in one area and waits for the harvest in another region to start, a fourth trader said.
Distillate exports include the higher sulfur grades of off-road low sulfur diesel, which was assessed down about a quarter-cent to minus 3.50 cents/gal, and USGC heating oil, which was down 25 points to minus 4.25 cents/gal.
USGC jet fuel declined 45 points to minus 1.45 cents/gal. US airlines on Thursday said they expect a 1.7% drop in Thanksgiving holiday passengers, while some traders said jet fuel demand is low worldwide at the moment.
