Diesel Demand At 3 Year High

The DOE’s estimate for diesel demand rose to a 2nd consecutive 3 year high in the prior report. Take a look at yesterday’s update that shows the spike in diesel demand by utilities to meet electricity needs during the January cold spike to understand why we’re seeing such lofty numbers despite trucking activity being stuck in the winter doldrums. The NYH spot market is showing signs that the January squeeze has ended however with basis differentials dropping sharply for ULSD and HO contracts this week, flatting out the backwardation that had spiked north of 10 cents for 30 days during the freeze suggesting that futures may soon follow suit.

Note the new chart added to the DOE weekly file that shows the official PADD 5 diesel stocks on the left comparted to what the real situation is when you add in Renewable Diesel inventory.

Gasoline stocks continue to hold near their 5 year average nationwide as refinery runs continue to hold above year ago levels while Gulf Coast facilities eagerly anticipate the closing of Lyondell’s Houston Refinery to clean up some of the excess supply in PADD 3. West Coast gasoline inventories continue to hold below their 5 year seasonal range which is helping keep basis values elevated while California deals with multiple refinery upsets.

BP announced plans to sell its Gelsenkirchen refinery in Germany and related assets, after announcing plans to convert that facility to produce renewables last year.

ADM and Bunge joined the chorus of producers singing the biofuel blues this week, with both companies citing the lack of certainty over US biofuel credit policy for declining earnings and a cloudy outlook going forward. ADM also announced it was laying off 600-700 employees as its earnings continue to contract.