Chicago ULSD Basis Weakens as Regional Manufacturing Slumps


   
   CRANBURY, N.J. (DTN) -- Basis for ultra-low sulfur diesel fuel in Chicago 
spot markets has weakened sharply since early November, as regional inventory 
has rebuilt after third quarter refinery upsets and following the end of 
harvesting. Another dynamic is weak manufacturing activity in the region, with 
diesel fuel demand closely correlated with the commercial and industrial 
sectors.

   This morning, the Institute of Supply Management released its Chicago 
Business Barometer for November that was well below market consensus with a 
37.2 index -- the lowest reading since the 2008-2009 Global Financial Crisis 
after stripping out the COVID-19 pandemic shock in 2020. November marked the 
third month of contraction in the Chicago region's manufacturing activity, with 
production plunging 17 points below the 12-month average. New orders fell 
sharply, prompting firms to work down a backlog of orders which shrunk rapidly 
this month.

   "Weak demand conditions saw 46% of firms experience falling orders," said 
ISM. "Inflation concerns, higher inventories and the slowing housing market 
were cited as key contributors."

   Midmorning Wednesday, Energy Information Administration reported a 1.2 
million bbl build in PADD 2 distillate fuel inventory to 25.7 million bbl 
during the week-ended Nov. 25, a fourth quarter high after having fallen to a 
23-month low two weeks earlier. The build pushed the region's distillates 
inventory a modest 131,000 bbl above the three-year average, the first surplus 
against the historic baseline since early March.

   Demand weakness reflected through ULSD basis was most pronounced in 
Wisconsin, where ULSD on the Badger Pipeline traded at 43cts and 47.5cts 
discounts to January futures on the New York Mercantile Exchange and was last 
assessed at a 45cts discount for a 600-point decline on the session. ULSD basis 
for the Wolverine Pipeline weakened 300 points to a 35cts discount to the 
January contract, with the pipeline moving east in northern Indiana to 
Michigan. ULSD basis was unchanged on the session at the Buckeye Storage 
Complex in northern Indiana, with the comparative strength against the 
pipelines owing to its tank storage assets.

    

    

   Brian L. Milne, 1.402.255.8020, brian.milne@dtn.com, www.dtn.com.




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