US midcontinent diesel prices ease below jet fuel

Rising US midcontinent diesel inventories coupled with steady jet fuel demand sent Tulsa, Oklahoma, diesel prices to a discount to jet fuel last week for the first time in nearly two months.

Magellan Pipeline ultra-low sulphur diesel (ULSD) prices fell 0.25¢/USG below jet fuel for the first time since 10 November on 5 January, and the discount widened to more than 1¢/USG during the final two sessions of the week. This came as a rise in refiner selling prompted Tulsa ULSD prices to reach the deepest discount to the Nymex in seven weeks, at 9.25¢/USG late last week. That spread has widened further today with ULSD deals struck between 11¢/USG and 11.75¢/USG below the Nymex.

The uptick in diesel selling last week came as US Energy Information Administration (EIA) data revealed US midcontinent ULSD inventories climbed to an eight-week high of 27.9 bl the week ended 31 December, which was a 12.1pc increase from the prior week and up by more than 10pc from year-earlier levels. Inventories ticked higher as midcontinent refiners shifted some production from gasoline to distillates, increasing regional ULSD output by 5.3pc to a three-week high of 1.2mn b/d.

ULSD prices could increase in the coming weeks and months when midcontinent farmers begin to stock up on ULSD ahead of the spring planting season.

While ULSD prices have declined, multiple deals for prompt jet fuel at the Magellan Pipeline were struck at an 8¢/USG discount to the February Nymex ULSD contract last week, cutting that discount by 3¢/USG from the prior week amid steady demand from buyers and sellers.

This saw arbitrage economics for shipping US Gulf coast jet fuel to Tulsa open on paper the past four sessions, with Tulsa prices fetching an average premium to the Gulf coast of 7.26¢/USG during that stretch.

Elsewhere in the midcontinent, Chicago West Shore/Badger pipeline jet fuel prices have held above ULSD since 13 December. West Shore/Badger jet prices fetched a 6.75¢/USG premium to ULSD late last week even as deals for jet fuel were done at 9¢/USG, the largest discount to the Nymex ULSD contract in five weeks.

By Jared Ainsworth