U.S. diesel prices surge anticipating a soft landing

Prices for diesel and other distillate fuel oils have surged as expectations for a soft landing and an improving economic outlook in the United States threaten to deplete already low inventories even further, said Reuters.

Futures prices for ultra-low sulfur diesel delivered in New York Harbor in September climbed to USD135 per barrel on Aug. 9, up from USD95 on May 31. Prices for diesel and other distillate fuel oils have been rising much faster than for crude petroleum, widening margins for refiners.

The crack spread for making diesel from U.S. crude, with both delivered in September 2023, has doubled to USD50 per barrel from USD25 at the end of April.

The crack for making diesel from U.S. crude, with both delivered in December 2023, has climbed to USD43 per barrel from USD27 at the end of April. Diesel prices are rising as traders anticipate that shortages will quickly re-emerge if the economy avoids falling into a recession later in 2023.

Distillate inventories have not recovered significantly despite the slowdown in manufacturing and freight activity evident since the middle of 2022. U.S. inventories amounted to 115 million barrels on August 4, up from 111 million a year ago, but otherwise the lowest for the time of year since 2000.

Inventories were 24 million barrels (-17% or -1.31 standard deviations) below the prior ten-year seasonal average on Aug. 4, based on data from the U.S. Energy Information Administration (EIA).

The deficit has widened rather than narrowed over the last five months from 12 million barrels (-9% or -0.73 standard deviations) on March 3 (“Weekly petroleum status report”, EIA, Aug. 9). The distillate shortage is a worldwide phenomenon, with inventories also 33 million barrels (-8% or -1.11 standard deviations) below the 10-year average in Europe at the end of July.

Singapore stocks were 3 million barrels (-30% or -1.79) below the 10-year average in the course of July, so there is limited scope for resolving the deficits by moving inventories from one region to another.

We remind, Saudi state oil giant Aramco (2222.SE) announced an additional near USD10 billion dividend, most of which will go to the government, the first of several extra payouts on top of its expected USD153 billion base dividend for 2022 and 2023.

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Saudi Aramco has informed customers in North Asia that they will receive the full volumes of crude oil they requested for September, multiple sources said on Friday, even as the unilateral voluntary output cut by the kingdom has been extended, said Reuters.

The world's top oil exporter announced last week that it would prolong the 1 million barrels-per-day (bpd) production reduction by another month to September and said the cut could be extended beyond that or even deepened.

Saudi Aramco CEO Amin Nasser on Monday said that the company's supplies to customers remain adequate. Chinese refiners did not request lower supply volumes for September-loading cargoes despite higher official selling prices (OSPs) set by Saudi Aramco, according to three trading sources.

They estimated some 50 million to 52 million barrels of Saudi crude to be taken by Chinese buyers, much higher than about 38 million barrels in August.

Some Chinese refiners have asked for less supply from Saudi Aramco over the past three months due to high oil prices, and have increased procurement from the Americas and West Africa.

We remind, Saudi state oil giant Aramco (2222.SE) announced an additional near USD10 billion dividend, most of which will go to the government, the first of several extra payouts on top of its expected USD153 billion base dividend for 2022 and 2023. Aramco will begin paying performance-linked dividends with a USD9.87 billion payout in the third quarter, based on its full-year 2022 and first-half 2023 results.

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Sadara Chemical Co has incurred a second-quarter 2023 net loss of Saudi riyal (SR) 1.39bn (USD371m), reversing a profit in the previous corresponding period, as sales slumped by 49%, said Argaam.

In a filing to the Saudi bourse Tadawul, Sadara cited lower average selling prices and sales volumes for the deterioration in its profitability on a year-on-year basis.

Sadara Chemical Co is a joint venture between state-owned energy giant Saudi Aramco and US major Dow Chemical.

In the first quarter of 2023, the company also incurred a net loss due to planned long-term turnarounds at its mixed-feed cracker and downstream polyethylene (PE) trains in Al Jubail.

We remind, Sadara Chemical Co., the parent company of Sadara Basic Services Co., reported a 97% slump in Q1 2022 net profit after Zakat and tax to SAR 45.9 million, compared to SAR 1.617 billion in the year-ago period. The company attributed the profit drop primarily to the recognition of SAR 1.05 billion gains from debt restructuring in Q1 2021. Sadara also cited a decline in higher production costs due to higher feedstock prices despite a rise in average sales price compared to the first quarter last year.

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The International Energy Agency (IEA) on Friday said demand growth for oil next year will be slower than previously forecast, citing lackluster macroeconomic conditions, post-pandemic recovery running out of steam and burgeoning use of electric vehicles, said Reuters.

In 2024, growth is forecast to slow to 1 million barrels per day (bpd), the Paris-based energy watchdog said in its August monthly report, down by 150,000 bpd from its previous forecast.

We remind, Most Russian fuel exports from the Baltic and Black Sea regions are now pricing above a price cap set in February by a G7-led coalition designed to limit Moscow's revenues in the aftermath of its invasion of Ukraine. The rise in Russian fuel prices comes as global prices for fuels from other origins soar amid strong demand and low inventory levels.

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Brazilian state-run oil company Petrobras is not planning to sell its 36% stake in petrochemical firm Braskem, newspaper Valor Economico reported on Thursday, citing unnamed sources, said Reuters.

Petrobras is one of Braskem's main shareholders alongside conglomerate Novonor, which holds a controlling stake in the firm but has sought to sell it to repay creditors after entering bankruptcy protection. According to Valor Economico, Petrobras CFO Sergio Leite said during a meeting with analysts that the company has no plans to sell off its stake in Braskem.

In a statement, the company said it was studying alternatives in the petrochemicals sector as part of its strategic planning. It did directly comment on the report. Petrobras holds contractual rights to buy out Novonor's stake in the firm or exercise tag-along rights in case of a potential sale.

Three offers so far have been presented to take control of Braskem: a joint bid from Abu Dhabi's ADNOC and U.S. asset manager Apollo, and separate proposals from Brazilian firms Unipar Carbocloro and J&F.

Following Valor Economico's story, shares of Braskem rose 7.8% in afternoon trading, making it one of the top gainers on Brazil's benchmark stock index Bovespa.

We remind, Chevron Lummus Global LLC (CLG) announced a recent contract award from Petroleo Brasileiro S.A. (Petrobras) for a new 12,580 BPD hydroisodewaxing (HIDW) unit at the GasLub Hub, a lubricant plant in Itaborai, Rio de Janeiro state, Brazil. Chevron Lummus Global's scope includes the technology license, basic design engineering, and research unit testing services.

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