US West Coast distillate prices jump on flare reports, export demand

US West Coast distillate fuel prices jumped to multimonth highs Feb. 7 on flaring in the Los Angeles area and export demand in Latin America.

Platts, part of S&P Global Commodity Insights, assessed US West coast jet fuel for Los Angeles pipeline up by 30 cents/gal to a two-month high 50 cents/gal premium to NYMEX March ULSD futures Feb. 7.

That is up by 32.75 cents/gal from two days prior, when the largest refinery on the US West Coast entered unplanned flaring, and the highest premium since Dec. 1, when the grade was assessed at a 59 cents/gal premium.

Los Angeles ultra low sulfur diesel prices jumped 13 cents/gal on the day to a 13 cents/gal premium to NYMEX March ULSD futures, the highest level since Nov. 27. Trade levels moved consecutively higher during the day as levels were reported at a 6 cents/gal premium, an 8 cents/gal premium and a 13 cents/gal premium.

Platts assessed San Francisco ULSD differentials unchanged on the day at a 13 cents/gal discount to NYMEX March ULSD futures, where they have been assessed since Jan. 31.

"There were days of inaction, then boom," a distillates trader said.

"I think export demand into Latin America came in," a West Coast ULSD trader said regarding the jump.

Panama Canal issues

Latin America has increased demand for refined products from the US West Coast due to low Panama Canal water levels. The restricted access to the canal has pushed Latin America to seek its supply elsewhere, including the US West Coast and Asia, several market sources said.

Water levels in the canal declined throughout 2023, falling below a five-year low due to El Niño's effects. Historically, Latin America has fed itself with barrels from the USGC with a small supplement from the US West Coast. However, this has since changed as USWC exports of clean products to Latin America increased by 13% year on year in 2023.

But this is not enough for Latin America to compensate for the loss of imports from the USGC, so Latin American countries have been turning to Asia for barrels. Imports from Asia to Latin America rose 30% from August to December 2023, according to market sources and S&P Global Commodity Insights analysts.

Refinery outages

Other market participants pointed to refinery outages in the region.

Marathon reported unplanned flaring at its 363,000 b/d Tesoro refinery for its Wilmington location near Los Angeles, which began Feb. 5, and for its Carson location, which began Feb. 6, according to the South Coast Air Quality Management District.

The Tesoro Los Angeles-area complex accounts for nearly 14% of available capacity on the USWC, according to the Energy Information Administration.

Tesoro started a planned flaring event at Carson Feb. 7, which is expected to last until Feb. 11, the air quality district said.

Phillips 66 plans to start flaring Feb. 8 at its 139,000 b/d Wilmington refinery, and it is expected to last until Feb. 10, according to the air quality district. The Wilmington refinery accounts for over 5% of regional capacity.

US West Coast jet inventories rose by 137,000 barrels to 10.923 million barrels in the week to Feb. 2, partly on higher imports over the same period by 12,000 b/d to 92,000 b/d, according to the latest EIA data published Feb. 7. US West Coast jet output fell by 14,000 b/d to 428,000 b/d at the same time.

West Coast ULSD inventories slid 355,000 barrels to 11.457 million barrels for the week ended Feb. 2, while total US ULSD inventories slid 3.193 million barrels to 118.934 million barrels.

On Jan. 12, US ULSD inventories reached their highest level since Aug. 20, 2021, at 125.952 million barrels.

West Coast ULSD production rose 15,000 b/d to 374,000 b/d for the week ended Feb. 2.