Midwest ULSD Basis Spike Following Cycle 1 Roll

SECAUCUS, NJ (DTN) – Midwest spot diesel and jet fuel cash discounts narrowed Monday (7/27), mitigating a steep selloff in NYMEX ULSD futures on the first day of Cycle 1 scheduling window for August pipeline deliveries.

Chicago ULSD was talked at a 30cts discount to the NYMEX August ULSD contract, narrowing 19cts on the day. The firmer basis helped cushion local spot prices against a 6.9cts drop in front-month NYMEX ULSD futures to a settlement of $4.1116 gallon following a broad liquidation in energy markets.

The start of the Cycle 1 nomination and trading cycles across regional pipeline networks prompted market participants to re-align cash differentials to reflect fresh August delivery commitments.

Physical markets also strengthened was also evident in regional jet fuel and key pipeline-connected locations. Chicago jet fuel basis narrowed by 30cts on the day to a 55cts discount to August ULSD.

Meanwhile, Buckeye and Wolverine pipeline ULSD differentials narrowed 17cts to a 30cts discount to the underlying futures benchmark.

The underlying strength in Midwest physical cash differentials follows strong gains last week, when Chicago ULSD rose 26.56cts to a weekly average of $3.6619 gallon.

Regional refined product markets continue to draw support from tight inventory levels, with PADD 2 distillate stocks falling 300,000 bbl to 28.6 million bbl in the week ended July 17, according to the U.S. Energy Information Administration, despite regional refinery utilization reaching 100.3%.