| NEW YORK, June 2
NEW YORK, June 2 U.S. diesel markets are on
unusually strong footing for this time of year thanks to robust
exports to Latin America and soaring demand domestically,
causing traders and refiners to rethink seasonal strategies.
Diesel inventories typically start to build from April, when
the weather warms and as motorists take to the roads more but
this year has been different.
Distillate demand in the United States has jumped 8.3
percent from the same time a year ago, while stockpiles have
fallen by more than 23 million barrels this year, the most for
the first five months of the year since 2012.
The unseasonably large drop in inventories has caused
refiners to maximize refinery production for diesel well into
May, an unusual move as refineries by now are traditionally
cranking up gasoline output, traders and market sources said.
Monroe Energy, a unit of Delta Air Lines, has ramped
up production of diesel at its Trainer, Pennsylvania, refinery,
specifically to fill a barge for exports, according to a source
familiar with the plant's operations.
Philadelphia Energy Solutions has shipped three cargoes of
diesel to Europe in the past week, sources said. In the Gulf
Coast, BP and Trafigura have been seen in the cash markets
buying diesel for exports, traders and brokers said.
Refiners in the United States typically have the ability to
switch some of their production between gasoline and diesel
depending on profit margins and demand for the fuels.
The diesel crack spreadHOc1-CLc1, a key measure of
margins, rose to its highest level last week since January. The
gasoline crack spread RBc1-CLc1 premium to diesel RBc1-HOc1
narrowed to the smallest in nearly three years seasonally,
providing further incentive to refiners to produce diesel.
"The tension between distillate and gasoline production has
continued with refiners yield switching from one to the other as
the market suits them," Credit Suisse said in a note.
The note said that some, like Valero, can shift about 7
percent of their yield between gasoline and diesel, more than
U.S. distillate exports exceeded 1.5 million barrels per day
(bpd) in May, highest since June, while gasoline exports were
less than 1 million bpd for a fourth consecutive month, said
Matt Smith of New York-based Clipperdata.
U.S. consumption also has risen due to strong industrial
demand and increasing freight movements. Freight movements hit a
record in February, before slipping slightly in March, according
to the U.S. Bureau of Transportation.
(Reporting by Devika Krishna Kumar in New York; Editing by Bill