MOSCOW (MRC) -- Spot prices for diesel in the U.S. Midwest have risen this month as refiners running at reduced rates have bought fuel to fulfill contracts and make use of storage plays, reported Reuters with reference to traders.
Because refiners in the Midwest are running at substantially lower levels than normal, they have had to buy diesel on the open market because some cannot fulfill contracts with their current production, traders said. Currently, refiners in that region are running at just 75.9% of capacity, according to U.S. Energy Information Administration data.
Although diesel stocks are high, at a near record 37.1 million barrels in the Midwest, refiner demand has caused cash differentials - the difference between regional prices and the heating oil benchmark - to rise by 50% since the beginning of June.
When governments imposed stay-at-home orders to curb the spread of the novel coronavirus, gasoline demand plummeted. Initially, however, diesel fuel held up, and refiners switched to produce as much diesel as possible to maximize profits but ended up oversupplying the market.
Margins to refine distillates from crude oil have tanked over the last month, falling to USD9.78 a barrel, the lowest seasonally since at least 2010, Refinitiv Eikon data showed.
Diesel demand is currently 18% below the year-ago, four-week average, EIA data shows, as the lockdowns have disrupted manufacturing and construction activity around the United States, with many projects slowly restarting.
Diesel cash prices in Chicago traded at 4 cents a gallon below heating oil futures, up from 12 cents per gallon below futures on June 1, traders said. Group Three diesel, a market that covers Midwest states including Oklahoma, traded at 6 cents a gallon below futures, up from 12 cents a gallon below futures.
As MRC wrote before, in early June, 2020, Royal Dutch Shell Plc restarted the crude distillation unit, coker and gasoline-producing cat cracker at its 225,300 barrel-per-day (bpd) Norco, Louisiana, refinery.
We also remind that Shell Singapore restarted its naphtha cracker in Bukom Island this week following a two months maintenance shutdown since the beginning of October 2019. Thus, this cracker was taken off-stream for the turnaround on 1 October 2019. The cracker is able to produce 960,000 tons/year of ethylene and 550,000 tons/year of propylene.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC"s ScanPlast report, Russia"s estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
MRC