Midwest ULSD Basis Tumbles on Talk of End to Iran War

SECAUCUS, NJ (DTN) – Midwest ultra-low sulfur diesel basis values tumbled Friday (5/29) as NYMEX ULSD futures declined amid mounting diplomatic efforts to end the Iran war that has severely disrupted global oil flows.

ULSD basis at the Buckeye Storage Complex and the Wolverine Pipeline fell by 24cts gallon to a discount of 14cts against June ULSD on NYMEX. On Thursday, diesel at both Buckeye and Wolverine was showing a premium of 10cts gallon to the NYMEX benchmark.

In Chicago, the ULSD basis was at discount of 17cts, weakening a further 4cts from Thursday’s 13cts.

In contrast to the moves in ULSD, the basis for jet fuel was relatively stronger on Friday, compensating for their accelerated decline in recent sessions. The differential for jet fuel in Group 3 strengthened by 14cts to a discount of 55cts, converging with the basis for Chicago jet fuel, which was unchanged.

ULSD premiums across the Midwest evaporated as intensifying efforts to end the Iran war triggered a risk-off mood across both the futures and physical energy markets, with traders reevaluating near term inventories.

Distillate fuel oil inventories in the PADD 2 region slid by 200,000 bbl on the week to 23.6 million bbl during the week ended May 22, data from the U.S. Energy Information Administration showed Thursday. Midwest jet fuel balances were flat on the week at 6.8 million bbl.

A delayed flood of emergency supply from Gulf Coast pipelines also hit major Midwest distribution hubs this week as local refiners restored normalized production rates. The sudden convergence flipped the PADD 2 region from acute supply deficit to a prompt surplus that provided relief to retail racks, traders said.