Group 3 ULSD Basis Plummets 52cts as Sellers Slash Price


   
Barani Krishnan
DTN Refined Fuels Market Reporter

   SECAUCUS, NJ (DTN) -- Group 3 ultra-low sulfur diesel (ULSD) spot basis 
plummeted Wednesday (9/9) to lead Midwest physical weakness, as sellers slashed 
differentials to clear barrels amid ample supplies and a sharp rally in 
distillate futures.

   Group 3 ULSD basis fell 52cts on the day to stand at a discount of 50cts 
gallon to the October NYMEX ULSD contract. The steep discount reflected a buyer 
strike against soaring outright cash prices, forcing heavy discounting in cash 
values to move the product, according to market sources.

   The October NYMEX ULSD futures contract climbed $0.2332, or 5.1%, on the day 
to settle at $4.8010 gallon, the highest since April 28.

   While futures were driven higher by global supply tightness, physical buyers 
in the Midwest remained on the sidelines, leaving Group 3 differentials to take 
the brunt of the market realignment.

   "There was determined selling in Group 3, where buyers didn't need the 
product," said one Midwest fuels trader.

   Unlike Chicago's deep pipeline networks and extensive storage buffers that 
absorb screen swings, Group 3 operates as a thinner, inland gathering hub with 
far less localized storage. When futures surge, Chicago basis adjusts gradually 
because refiners and blenders can easily absorb or store prompt product.  Group 
3 lacks such flexibility -- without a continuous storage sink for excess 
barrels, a single seller needing to move a batch can trigger massive, outsized 
swings in differentials when buyers opt to remain on the sidelines when futures 
rally.

   Reflecting this, across regional pipeline networks, basis adjustments were 
far more modest. Chicago ULSD basis weakened by 1 cent to stand at a 2.5cts 
gallon discount to the October benchmark.

   In eastern pipeline markets, Buckeye Complex and Wolverine ULSD basis 
dropped 2cts to a 1 cent gallon discount to October futures. 

   PADD 2 distillate fuel oil inventories rose by 200,000 bbl to 28.8 million 
bbl during the week ended August 28. That was the highest balance for Midwest 
distillates since the week ended July 10, when stocks stood at 28.86 million.

    




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