Most US ULSD markets strengthened Wednesday even as stock reports show record levels of inventory, as a strong contango in the market supported buying and storing barrels, sources said.
Platts assessed Group 3 X Grade at NYMEX May ULSD futures minus 4.50 cents/gal, up 45 points/gal on the day. Chicago ULSD differentials strengthened 25 points/gal to NYMEX May plus 1.25 cents/gal, bringing the differential to its highest point in nearly a month.
Prices rose even as stocks in the Midwest rose to the highest level on record, setting a high-water mark for the second week in a row, according to data released Wednesday by the US Energy Information Administration. EIA data showed that Midwest ULSD stocks rose 511,000 barrels to 35.82 million barrels, the highest total on record.
Alongside the Midwest, total US inventories reached a record-high for the second-consecutive week, with totals hitting 144.86 million barrels, up 2.14 million barrels.
Despite the high inventories in the Midwest, buying interest remained strong, as APEX bought 10,000 barrels from US Oil in the Platts Market on Close assessment process at minus 4.50 cents/gal.
"No one wants to sell that doesn't have to, which is fine until no one can hold it," a Midwest source said. "We seem to have pockets of that, and then you see a sharp spike lower, but then some barrels move out and we move back up. Rinse and repeat."
The lack of sellers comes from companies looking to capture the carry in the market, sources said. The contango between the May and June NYMEX ULSD futures contracts was assessed at 89 points/gal on Wednesday, with the May contract at 126.82 cents/gal.
Atlantic Coast ULSD differentials also remained strong, with ULSD for barges and the Buckeye Pipeline assessed flat to the NYMEX May ULSD futures contract and ULSD delivered off the Colonial Pipeline in Linden, New Jersey, assessed up 10 points/gal to plus 25 points/gal.
"Structure on the screen supports buying barrels and holding them," an Atlantic Coast source said.
East Coast stocks of ULSD rose 2.63 million barrels to 45.82 million barrels, the highest since early March and narrowing the spread between Gulf and Atlantic stocks to 727,000 barrels. Companies looking to capture a carry in the market led East Coast stocks to top those in the Gulf Coast by as many as 16 million barrels in November, but Gulf Coast stock builds helped push inventories there 3.83 million barrels higher in early April.
The Gulf Coast ULSD cash differential remained unchanged Wednesday at minus 5.25 cents/gal, but a slight fall in the underlying NYMEX and strengthening CIF NWE ULSD cargo prices were enough to narrowly reopen the USGC-UK Continent arbitrage.
EN590 Export ULSD was assessed at $363.77/mt, while CIF NWE ULSD prices rose $3/mt to $381.25/mt. Freight fell $1.33/mt to $15.93/mt, indicating an open arbitrage of $1.55/mt.
"Freight collapsed, and Europe's much higher," a Gulf Coast source said. "So I think we'll start to see more fixings for end-April and into the first half of May at these levels, until the Russian and agriculture production comes back in June. Europe will need to pull from the US, and US Gulf Coast ULSD differentials will be supported on the upside."
