Midwest Basis Could Rise in Pre-Memorial Day Squeeze


   
Barani Krishnan
DTN Refined Fuels Market Reporter

   SECAUCUS, NJ (DTN) -- Midwest refined product differentials could face 
upward pressure this week as blenders and distributors aggressively pull fuel 
volumes to meet demand anticipated for the May 25 Memorial Day holiday travel 
window.

   The forecast spike in road trips will collide with structural tightness 
across the U.S. midcontinent, where an unusually heavy refinery problem stack 
denies the market of supply flexibility. The AAA projects that a record 45 
million people in the U.S. will go behind the wheel for the holiday. Over 1.3 
million of that will be Michigan travelers, the data shows, underscoring the 
pull on regional supply despite Midwest gasoline averaging above $4.40 gallon.

   A multi-layered refining crunch has gripped the PADD 2 region, anchored by 
an ongoing United Steelworkers lockout at BP's 440,000 bpd Whiting refinery 
that continues to limit the facility's production flexibility. Simultaneously, 
prolonged spring turnarounds at Phillips 66's 356,000 bpd Wood River plant and 
Marathon Petroleum's 253,000 bpd Robinson facility have heavily curtailed 
regional processing capacity.

   The supply deficit has triggered extreme price gyrations, with traders 
noting that refiners routinely hoard barrels on supply squeeze fears before 
abruptly releasing them to the spot market. That, in turn, has led to massive 
daily fluctuations in Midwest fuel differentials, illustrated by the May 12 
session, where prompt Chicago ULSD basis spiked to a premium of 97.5cts before 
losing 85cts from that later in the day.

   Similar volatility is shaking the gasoline complex, where Chicago, 
Wolverine, and Buckeye differentials fell up to 21.5cts on May 13 despite 
bullish inventory drawdowns.

   Inventory data from the U.S. Energy Information Administration highlights 
the underlying tension, with PADD 2 motor gasoline stocks falling for a fourth 
consecutive week to 45.6 million bbl during the week ended May 8.

   This drop leaves regional gasoline inventories at their lowest level since 
late November, while regional distillate stockpiles sit at a lean 24.2 million 
bbl.

   With wholesale ULSD and jet fuel basis highly exposed to peak spring 
agricultural and commercial trucking demand, physical cash markets look poised 
for further violent swings.




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