Crude Summit: ULSD grappling with supply challenge

Ultra-low sulfur diesel (ULSD) prices have fallen unseasonably low because of oversupply rather than slack demand, HollyFrontier executive chairman Mike Jennings said today.

Global supply of the fuel has not rebalanced following the startup of new distillates-focused hydrocrackers over the last five years, Jennings said at the Argus Americas Crude Summit in Houston. US refiners, concerned about falling gasoline demand and seeing stronger historic distillates cracks, have shifted refinery yields into ULSD production by 3pc over the past five years, to 30pc of output, according to the Energy Information Administration.

US Gulf coast refiners including Marathon Petroleum, Phillips 66 and Valero have completed projects boosting distillates production.

"So while demand is pretty good, supply is even stronger," Jennings said.

Falling crude prices, a mild winter and weakening industrial activity have been blamed for Nymex ULSD settlements at 12-year lows. Gasoline began trading at a premium to the contract in December, its earliest inversion in nearly a decade.