Diesel arb to Tulsa widens on stock draw

Arbitrage economics for shipping US Gulf coast diesel to Tulsa, Oklahoma, widened this week as declines in refinery throughput and steady agricultural demand recently cut US midcontinent diesel inventories to a 10-week low.

Midcontinent ultra-low sulphur diesel (ULSD) stocks fell to 30.8mn bl the week ended 3 September, down by 2.5pc from the prior week to levels last seen in late May, US Energy Information Administration (EIA) data show. The draw comes amid the fall harvest season, which typically peaks in October.

Agricultural activity — which accounted for almost 10pc of diesel demand in the midcontinent in 2019 — is on pace with recent years. The amount of US corn in the mature stage more than doubled to 21pc last week, US Department of Agriculture (USDA) data show, rising 2 percentage points above the five-year average.

ULSD inventories also fell as midcontinent refiners slashed crude throughput by nearly 6pc last week to 3.7mn b/d, the lowest since May, according to EIA estimates. This was 5.3pc below the five-year average for the first week of September.

Magellan Pipeline ULSD prices at Tulsa, Oklahoma, have averaged a 6.63¢/USG premium to the Gulf coast this week, widening by more than 1¢/USG from last week and up by 2.63¢/USG from the same week in 2020. The inter-regional spread has exceeded Magellan's 5.78¢/USG shipping tariff since 3 September after holding below the cost of shipping 30 August-2 September. Hurricane Ida, which forced off line more than 2mn b/d of Louisiana refining capacity in late August, has not slowed ULSD shipments to the midcontinent, market participants said.

Further north, ULSD prices at the Buckeye Complex in Hammond, Indiana, have held below Explorer Pipeline's 6.8¢/USG tariff since late August. Yet Buckeye Complex's 6.73¢/USG premium yesterday was the widest since rising above 7¢/USG on 27 August.

By Jared Ainsworth