Midwest ULSD Basis Weakens as Futures Continue to Rally

DAVENPORT, FL (DTN) — Midwest ultra-low sulfur diesel (ULSD) basis weakened Thursday (3/5) as regional cash markets adjusted to sharply higher futures prices, with the April NYMEX ULSD contract climbing more than 50cts gallon amid geopolitical risk tied to Iran and concerns over potential disruption to crude flows through the Strait of Hormuz.

Chicago ULSD basis weakened 7cts on the session to a 22cts discount to April NYMEX ULSD futures, while Group 3 ULSD dropped by 6cts to a 47cts discount. Meanwhile, the same product moved at the Buckeye Complex and the Wolverine pipeline dropped by 11cts to a 22cts discount, according to DTN data.

“This move is mostly futures outpacing demand,” a source familiar with the Midwest market said. “The physical market hasn’t tightened enough to justify the flat price yet, so basis is adjusting lower while buyers step back.”

The widening discounts reflect futures advancing more aggressively than physical demand rather than a sudden deterioration in Midwest supply fundamentals. When flat price rises rapidly, rack and spot markets often widen discounts as buyers hesitate at elevated replacement costs and spot liquidity temporarily slows. 

On Thursday, the national average ULSD rack price was at $3.3996 gallon, up 13.99cts from the prior session, DTN data showed

PADD 2 remains insulated from direct crude supply disruptions given its reliance on Canadian and domestic pipeline flows. However, sustained strength in Gulf Coast values tied to export demand could eventually lend support to inland pricing if tighter Atlantic Basin distillate balances begin pulling barrels toward coastal markets.