MARKETWIRE ALERTS

MARKETWIRE ALERTS 

MarketWire Afternoon News for December 15th

Updated at 5:00 PM ET 

HEADLINES:

— Chicago CBOB-ULSD Spread Narrows Ahead of Winter

— Why California Gasoline Prices Stay the Nation’s Highest

— Phillips 66 Announced $2.4B Budget, Targets NGL Growth

NEWS:
 

Midwest ULSD Basis Soft as Winter Demand Risks Build

Midwest ULSD differentials are leaning soft as winter sets in, with colder-than-normal forecasts boosting seasonal demand risks even as basis values remain anchored in deeper discounts.

On December 15, Group 3 ULSD was assessed at 30cts discount to front-month NYMEX ULSD, while Chicago Western Badger traded at a 33.5cts discount, leaving Group 3 with a 3.50cts premium to Chicago. The spread is also slightly higher in the southern Midwest with its heavier supply deficit compared with the supply-comfortable upper Midwest hub.

Weather remains the immediate driver for the variance. The region is heading into a colder stretch, with below-normal temperatures expected across the Plains and Great Lakes, according to NOAA’s Climate Prediction Center. This pattern often lifts heating and trucking demand and increases terminal activity around Chicago when cold snaps develop.

Group 3 also benefits from a denser refinery network than the Chicago rack area, giving the hub more consistent access to barrels. PADD 2 refinery utilization has been elevated this season, with EIA weekly data showing rates in the 90–95 percent range in early November, reinforcing steady production flows into the southern Midwest. With more supply feeding that corridor, Group 3 must discount further to clear barrels, aligning with the deeper basis now seen against front-month ULSD futures.

Lower stocks leave the Midwest with less breathing room if demand strengthens. PADD 2 distillate inventories were 25 million bbl in the latest EIA report, down from 26.4 million bbl at the same time last year. This represents a decline of 1.4 million bbl compared to the same period last year. ULSD-grade stocks show the same pattern: 24.4 million bbl versus 25.8 million bbl last year. Entering winter with a slimmer cushion raises the stakes if heating and transport demand accelerate.

Retail fuel trends remain steady but firmer. PADD 2 on-highway diesel averaged $3.635 per gallon, or 23cts higher than the same week last year, according to DTN Energy data. Pump levels sitting above marks from a year earlier while spot basis trades deeply discounted suggest a market with orderly logistics but softer near-term spot appetite.

Group 3 premium to Chicago reflects relatively firmer demand and tighter balances in the southern Midwest, where steady rack movement and logistics support basis levels. Chicago, facing more comfortable supply conditions in the Upper Midwest, remains softer by comparison and must discount further to keep barrels moving.

Looking ahead, traders are watching how quickly winter demand materializes across the region. A sustained cold pattern could narrow the gap by lifting Chicago ULSD basis, especially with inventories already below year-ago levels.

But if demand builds gradually and logistics remain stable, Group 3 and Chicago are likely to hold near current discounts, with Group 3 maintaining a modest premium as long as southern Midwest pull remains stronger.

Why California Gasoline Prices Stay the Nation’s Highest

California drivers continue to pay the highest retail gasoline prices in the nation, a trend driven by a tightly constrained supply system, refinery outages and an isolated refining network that leaves the market especially vulnerable to disruptions.

Unlike most U.S. fuel markets, California operates within a largely self-contained gasoline system. More than 90% of the gasoline consumed in the state is produced at in-state refineries that must meet California’s specific environmental standards, according to the California Energy Commission. Imported gasoline and blending components account for just 3% to 7% of supply, limiting the state’s ability to replace barrels quickly during outages.

“The lack of redundancy has become one of the biggest drivers of elevated prices,” a market participant said.

California has 14 refineries concentrated in the Bay Area, Central Valley and Los Angeles, processing more than 1.6 million bpd of crude oil. Eleven major facilities produce transportation fuels that meet California’s reformulated gasoline standards while also supplying most of Nevada and nearly half of Arizona’s demand, according to the CEC. When even part of a refinery goes offline, the impact can ripple quickly through wholesale markets.

“When you lose a refinery or even part of a unit, there’s nowhere to pull barrels from,” the market source said. “You can’t just bring in replacement supply overnight, and that tightness shows up at the rack and eventually at the pump.”

Those risks have resurfaced this month following an ongoing flaring event at Chevron’s 269,000 bpd El Segundo refinery, a key supplier of gasoline into the Los Angeles Basin. Chevron reported the flaring began December 9 with no listed stop time, according to a filing with the South Coast Air Quality Management District. The incident adds to a series of emergency and non-emergency flaring events at the facility this fall.

Unplanned refinery outages remain one of the most significant drivers of gasoline price spikes in California, the CEC has said. Because the state’s fuel market is isolated by both distance and fuel specifications, resupply during outages takes longer and costs more than in other regions, allowing price spikes to persist.

California’s specialized gasoline blend further limits flexibility. While other regions can rely on multiple formulations during tight markets, California has few alternatives.

“Other regions have more flexibility when prices spike because they can lean on different blends,” another market participant said. “Here, E15 isn’t a pressure valve, so when supply tightens, prices move faster and stay higher.”

Crude oil prices also play a role, with global volatility continuing to influence gasoline costs, the CEC said. At the same time, gasoline demand in California has declined since 2017 due to electric vehicle adoption and changes in work patterns, but lower demand has not translated into sustained price relief when supply disruptions occur.

For drivers, the result remains familiar: when supply tightens, California prices rise faster, fall slower, and stay well above the national average; a dynamic market participants say is unlikely to change without major structural shifts.

Phillips 66 Announced $2.4B Budget, Targets NGL Growth

Phillips 66 announced Monday (12/15) a $2.4 billion capital budget for its 2026 fiscal year, with $1.3 billion for growth projects that will notably boost gas processing capacity by 300 million cubic feet per day (MMcfd).

Midstream operations will be allocated $700 million in growth capital to advance the integrated Natural Gas Liquids (NGL) wellhead-to-market strategy, focusing on increasing gas processing, pipeline capacity, and fractionation across key gas basins.

This investment includes the Iron Mesa gas processing plant, a 300 MMcfd facility in the Permian Basin expected to begin initial operations early in the first quarter of 2027.

The budget also funds the expansion of the Coastal Bend NGL pipeline, increasing capacity from 225,000 bpd to 350,000 bpd. This infrastructure enhancement improves connectivity between the Permian and Eagle Ford basins to fractionators in Corpus Christi and Sweeny.

Additionally, Phillips 66 is proposing a new fractionator in Corpus Christi to add 100,000 bpd of NGL fractionation capacity. A final investment decision for this facility is anticipated in early 2026, with completion planned by 2028, which would increase capacity to move Y-grade and purity products between Corpus Christi, Sweeny, and Mont Belvieu.

In refining, the company plans to invest $520 million in growth projects aimed at producing higher-quality gasoline to facilitate greater access to valuable global markets.

The Humber gasoline quality improvement project, a multiyear refining investment, is particularly targeted for startup in the second quarter of 2027.

Refining growth capital is also directed at over 100 low-capital, high-return projects focused on operational improvements centered on crude flexibility, feedstock optimization, and clean product yield enhancements.

In petrochemicals, Phillips 66 is allocating $480 million for its CPChem joint venture, which aims to build two new facilities: one slated to begin construction on the U.S. Gulf Coast next year (2026) and the second in Qatar in early 2027.