US DATA: ULSD stocks surge to 2.5 month high, exports decline from four-month high: EIA

Ultra-low sulfur diesel inventories swelled to 112.940 million barrels, led by gains across all five PADD districts, most notably the US Gulf Coast and US Midwest, which rose by 933,000 barrels to 35.912 million barrels and by 790,000 barrels to 27.602 million barrels, respectively.

Atlantic Coast inventories also rose by 746,000 barrels to 34.290 million barrels, while West Coast stocks gained 519,000 barrels to 11.307 million barrels. Gulf Coast stocks reached a five-week high, Midwest stocks hit a nine-week high, while Atlantic Coast and West Coast stocks reached eleven-week and nine-month highs, respectively. Gulf Coast jet inventories reached their lowest level since February, the EIA data showed.

Exports slid by 79,000 b/d to 1.471 million barrels from a four-month high in the previous week. Diesel and gasoil exports to South America topped 16.6 million barrels in November, behind only July 2022, which saw exports of 18.4 million barrels, the highest in the past five years. Ecuador was the main destination, taking 2.1 million barrels, followed by Callao, Peru at 1.5 million barrels and Mejillones, Chile at 1.3 million barrels, according to S&P Global Commodities at Sea data.

November exports to Northwest Europe and the Mediterranean were also strong, totaling 8.7 million barrels, the second-highest volume in the past five years, behind August 2024 when exports totaled 9.2 million barrels.

The S&P Global Commodity Insights ArbFlow tool shows that the arbitrage to move barrels from the US Gulf Coast to Northwest Europe was open for nearly a month, lending support to the strong export volumes in the transatlantic trade flow. The arbitrage opened on Nov. 11 at 65 cents/b, peaked at $1.54/b on Nov. 14, and remained open until Dec. 9, when it was measured closed at 1 cent/b.

Net ULSD production slipped by 142,000 b/d from its five-year high to 5.011 million b/d in the week ended Dec. 6, according to EIA data. Gulf Coast production slipped by 40,000 b/d to 2.940 million b/d, while Midwest production slid by 54,000 b/d to 1.226 million b/d. Refinery utilization decreased by 1 percentage point to 92% of available capacity in use.

High domestic inventory levels and strong production in the Gulf Coast are being offset by increasing exports, helping mitigate potential price slides for the benchmark Gulf Coast ULSD differential. Platts assessed the differential at 0.10 cent/gal lower, resulting in a 9 cents/gal discount to the NYMEX M1 ULSD futures contract on Dec. 11. The outright price was assessed at 3.62 cents/gal stronger, at $2.1333/gal.

In the past two years, there has been an aggressive sell-off in December as inventory holders attempt to get rid of as many products as possible to avoid Texas' Ad Valorem tax on products in storage. In December 2023, the Gulf Coast ULSD differential reached an all-time low at a 42 cents/gal discount to the M1 ULSD futures contract, causing Colonial Pipeline to fully allocate as shippers looked to move barrels out of the state and into the eastern US.

Market participants expect less impact this year, as reflected in December swaps, which have traded higher since October. December swaps were trading around a 13.5 cents/gal discount in October but were last observed trading around an 8.75 cents/gal discount on Dec. 11.