Chicago ULSD Basis Weakens as Regional Manufacturing Slump
11/30 3:05 PM
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,, (c) Copyright 2022 DTN, LLC. All rights reserved.
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