USAC ULSD demand increases on cold weather as stocks continue to draw

Houston — Ultra low sulfur diesel stocks on the Atlantic Coast drew for the second consecutive week, falling 1.844 million barrels to 54.39 million barrels during the week ended Jan. 22, US Energy Information Administration data released Jan. 27 showed.

Regional stocks were last seen lower during the week ended Nov. 27 when they totaled 53.02 million barrels, EIA data showed.

Continued stock draws come as cold weather has impacted the Atlantic Coast, with a winter weather advisory announced earlier in the week of Jan. 24 for parts of New England, the National Oceanic and Atmospheric Administration's National Weather Service showed.

The cold snap "clears barrels pretty quickly," one ULSD trader said.

With the incoming cold weather, ULSD inventories in New England drew to an eight-month low, falling 606,000 barrels to 10.96 million barrels, EIA data showed. Stocks were last seen lower in New England during the week ended May 22 at 10.13 million barrels.

USAC ULSD markets rise amid cold snap

As stocks have drawn, ULSD markets on the Atlantic Coast have seen multi-week highs, with S&P Global Platts assessing ULSD off the Colonial Pipeline at the NYMEX February ULSD futures contract plus 90 points/gal on Jan. 26. This marks the strongest offline diesel has been since Dec. 18 when it was assessed at January futures plus 1.25 cents/gal. Platts assessed the same market at February futures plus 85 points/gal on Jan. 27.

ULSD in both the Buckeye Pipeline and barge also saw multi-week highs on Jan. 26, with both markets being assessed level to February futures. They were last seen higher on Dec. 31, assessed at February futures plus 5 points/gal. Both markets were assessed at February futures minus 5 points/gal on Jan. 27.

CPL, European arbitrages weaken

Despite the recent strengthening markets, lackluster economics have kept many arbitrages to the region shut.

On the Gulf Coast, relative strength in the regional market has weakened demand to send ULSD up the Colonial Pipeline.

Platts assessed ULSD on the Gulf Coast at March futures minus 5.40 cents/gal on Jan. 27. With shipping costs on the pipeline around 6.30 cents/gal, shippers saw a net loss of 5 points/gal to ship up the pipeline on Jan. 27.

The Colonial arbitrage was last open on Dec. 18, when shippers saw a net gain of 5 points/gal.

Alongside the shut Colonial arbitrage, ULSD barrels making their way from Europe to the Atlantic Coast have also dwindled recently.

"Imports are slowing down from Europe and the economics are not there ex-ARA," a second ULSD trader said.

The first trader added to this sentiment, highlighting factors at play in the weakened arbitrage. "Freight is ticking up out of the ARA for sure, but arbitrage still shut pretty cleanly for now. It doesn't mean barrels won't come, just would suspect it won't be a huge amount."

Currently, ULSD imports making the voyage from the Europe to the Atlantic Coast total 1.93 million barrels in January, Kpler data showed. This is 2.49 million barrels below the total seen in December, which sat at 4.42 million barrels, the data showed.

In terms of total ULSD imports making their way to the Atlantic Coast, 4.64 million barrels have arrived as of Jan. 24, US Customs data showed. This is well below the same period in December, where 6.19 million barrels had reached the Atlantic Coast from other countries.