NYMEX ULSD settles at discount to RBOB as weak demand prompts storage concerns

New York — NYMEX ULSD futures settled at an uncommon discount to RBOB Friday as weak demand and dwindling storage space added downward pressure to diesel prices.

NYMEX May ULSD settled 8.78 cents lower at 64.67 cents/gal, while May RBOB climbed 1.76 cents to finish at 66.12 cents/gal.

The front-month ULSD contract last settled lower in May 2003.

Global coronavirus pandemic lockdowns have cratered demand for transportation fuels, especially jet fuel, and contributed to a broad slowdown in economic activity that has crimped distillate demand in recent weeks.

Although long haul trucking has been relatively untouched by the coronavirus pandemic, truck traffic has slipped. INRIX travel monitoring pointed to an accelerating decline last week down 13% vs. 10%, for the preceding week.

Jet fuel demand is also slated to fall further as more flights are grounded in coming weeks. While passenger traffic is down more than 90%, many planes are still flying, albeit near empty, according to S&P Global Platts Analytics. But this is expected to change. The number of grounded planes as a percent of the fleet averaged at 47% on April 21, up sharply from 19% on March 31.

Fast filling storage and dimming a demand outlook weighed heavily on the front end of the ULSD curve Friday.

NYMEX June ULSD settled at an 8.6 cent/gal premium to the May contract, up from 2.1 cents/gal on Thursday.

As land-based storage options dwindle, traders are increasingly turning to floating storage options, and shipowners in the clean tanker market have experienced a sharp uptick in freight rates for their vessels.

The rate for a clean medium-range tanker going from Northwest Europe to the US Atlantic Coast was assessed by Platts Friday at $69.26/mt, more than double week-ago levels of $27.55/mt.

Dirty tanker owners are reportedly cleaning their vessels so they can be used to load clean petroleum products as the clean tanker market booms (see story 1623 GMT).

Crude futures finished the week higher as the first US states began lifting coronavirus restrictions on non-essential businesses.

NYMEX June WTI settled up 44 cents at $16.94/b and ICE June Brent was up 11 cents on the day at $21.44/b.

Georgia lifted restriction on some non-essential businesses to reopen in a limited capacity Friday, ahead of a state-wide restart next week.

"Georgia will give key insights to how comfortable businesses and consumers are with reopening their economy," OANDA senior market analyst Edward Moya said. "Georgia is one of the most important stories right now as it could potentially provide a path on what to expect when other states reach their thresholds to begin reopening."