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Focus for US ULSD differentials is on turnarounds, exports, not futures

Houston — NYMEX ULSD futures may have dropped sharply Friday, but differentials forUS ULSD markets held steady as exports ramp up ahead of the upcoming refinerymaintenance season.

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S&P Global Platts assessed benchmark Gulf Coast ULSD at NYMEX March ULSDminus 4.10 cents/gal, where it traded nine times for 225,000 of the 425,000 barrels done in the Platts Market on Close assessment process. That was down 15 points from Thursday, which was the strongest differential since October 5.

The front-month NYMEX, or "Merc," contract dropped 6.62 cents to$1.8551/gal, continuing a recent downward draft in the overall oil market.

"The NYMEX is mostly paper liquidation by the funds. They have beenheavily long," one trader said. "Everyone was watching the Merc. The cashmarket was dead other than the [MOC process]."

It's not uncommon for cash, or spot, market differentials to move littleduring gyrations in their underlying futures basis. Traders have hedged thatportion of the trade, or simply step to the sidelines during marketvolatility.

Diesel differentials in New York Harbor area rose 5 points Friday to plus0.15 cent/gal, while Chicago dropped 50 points to minus 2.50 cent/gal, Group 3out of Oklahoma gained 15 points to plus 0.40 cent/gal and Los Angeles CARBdiesel fell 50 points to plus 2.75 cents/gal.

The traditional spring maintenance is providing support for dieseldifferentials, but Gulf and West coast differentials are also hovering nearpost-Hurricane Harvey levels due to renewed export demand.

Diesel flows to Latin America strengthened this week with a tender for3.12 million barrels of diesel with maximum 50 ppm sulfur issued byPetroecuador, starting in March. Petroperu is getting in February around five320,000-barrel cargoes. Those typically come from the Gulf Coast, but can bedelivered from the West Coast as well. According to cFlow, S&P Global Plattstrade-flow software, three ships are coming from Latin America, two to San Francisco and one to Seattle, likely either for gasoline or diesel.

San Francisco CARB diesel was 3 cents below Los Angeles, but thenon-California-specific grade of EPA ULSD was at parity to the higher qualityCARB diesel in the Bay Area, while Los Angeles EPA was 3 cents below CARBdiesel there.

"A lot of diesel is exported out of the Bay to South America," a WestCoast trader said.

--Matthew Kohlman, matthew.kohlman@spglobal.com

--Edited by Jason Lindquist, jason.lindquist@spglobal.com