The Midwest (PADD 2) has recently witnessed intriguing shifts in distillate inventories that have set the stage for market discussions. Within a span of just over a month, distillate inventories surged by a notable 4.7 million barrels (18%) between June 9 and July 14, leading to palpable volatility in Midwest distillate prices and crack spreads.
At the heart of this movement lies the increased crude oil inputs to Midwest refineries, a direct result of refineries resuming operations after a maintenance hiatus. Significantly, the revival of the Cenovus Toledo refinery and the conclusion of an operational pause played pivotal roles in reshaping Midwest production dynamics, propelling refinery crude oil inputs to a five-year high.
Historically, the Midwest has played a vital role in fuel movements, particularly to the East Coast and Gulf Coast. However, the ongoing lock maintenance along the Illinois River has introduced a unique challenge, impacting traditional flow dynamics. As a consequence, diesel and gasoline inventories have surged within the region, leading to regional price volatility and noteworthy disparities in crack spreads.
Looking ahead, a tighter outlook for distillate inventories in the Midwest comes into view for the latter part of summer. Lock maintenance is projected to continue influencing inter-PADD transfers until September, potentially culminating in significant distillate inventory draws. These shifts align with the harvest season, fostering a return to market equilibrium and heightened price stability.
The information provided in this market insight is for general informational purposes and should not be considered as financial advice. It is not intended to offer any financial recommendations or endorsements. Any decisions made based on the content are the sole responsibility of the reader.
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