(Amended to add comments from Texas Food & Fuel Association president.)
Various diesel prices moved higher on Tuesday and into Wednesday as the scope of diesel outages in Texas and other parts of the Gulf Coast came more into focus.
The three largest truckstop operators — Love’s, TA (NASDAQ: TA) and Pilot Flying J — all released specific station-by-station outages, whether the retail outlet was without power or was simply out of fuel.
Based on lists placed on the companies’ websites, it appears that more than 40 stations from those three outlets, the vast majority in Texas, are without fuel to sell. At least an equal number are without power, and electricity is needed to operate the pumps.
But while those three truck stops may be behemoths in their industry, their numbers in Texas are but a small portion of the overall supply chain in that state. For example, the Texas Food & Fuel Association, which represents convenience stores and other fuel marketers in the Lone Star State, says on its website that the organization’s members “own, operate and supply” more than 12,000 outlets, which presumably are struggling without power, without resupply of gasoline and diesel, or both.
On its website, Pilot Flying J did not just note the lack of available fuel. It tied it specifically to an inability to get product into the stations. “Our supply and transportation teams are working hard to ensure that product remains available at travel center locations,” the company said. Before listing several stations, it said of them that “deliveries are not scheduled at the following locations.”
The president of the Texas Food & Fuel Association, Paul Hardin, told FreightWaves that there was no shortage of fuel in the state. But he did say that there have been an interruption in deliveries and confirmed that his membership is seeing the same thing that’s in the data from the three large truckstop companies: some retail outlets are down and others lack fuel because of delivery problems.
Hardin also said delivery trucks in Texas are coping with the “gelling” of diesel. That can occur when the biodiesel that is blended into diesel to meet environmental requirements or to take advantage of tax credits gell. That gelling does not occur with petroleum-based diesel.
The biggest uncertainty in the market going forward remains not just supply but demand. How much diesel and gasoline demand will be lost as a result of the storm, and what’s that in comparison to supply declines?
The number of refineries in the Gulf Coast region shut because of low temperatures stands at approximately 12-13, removing about 4.8 million barrels a day of refining capacity from the market that has seen daily U.S. refining throughput running at about 14.6 million to 14.7 million barrels per day recently.
That has helped boost prices. Wednesday was the first day of the deep freeze during which wholesale price levels could be set by marketers with knowledge of both commodity markets and physical markets. A day earlier, wholesale prices needed to be established solely on the basis of holiday trading Monday in the ultra low sulfur diesel market on CME. On that day, because of the Presidents Day holiday, there was no physical market to also help guide price-setters in their decisions.
But with a full day of trading in the books for Tuesday, the companies that sell diesel at the wholesale level known as the rack could get to work. The average rack diesel price in Houston, according to data in FreightWaves’ SONAR, rose 7.1 cents from Tuesday, to $1.926 a gallon from $1.855 a day earlier. Last Friday, that price stood at $1.82.
In Dallas, the progression of prices went from $1.885 a gallon on Friday to $1.915 on Tuesday and $1.965 Wednesday.
The market got two further boosts on Wednesday. The price of ultra low sulfur diesel on CME rose 2.33 cents a gallon to settle at $1.8377. That benchmark price now has risen more than 7.6 cents in one week. Depending on when you measure the day that diesel prices first felt the effects of the pandemic in January 2020 — and it was diesel that got hit first, because of the assumed impact on jet fuel, which is a distillate like diesel — ULSD has regained all or virtually all of its pandemic-related declines.
Additionally, Gulf Coast diesel in the physical market strengthened as well. That price trades as a differential to the CME price. Last Friday, the differential for the prompt delivery cycle on the south-to-north Colonial Pipeline traded at roughly 5.4 cents less than the CME price. On Tuesday, it was about 3.4 cents. On Wednesday, it was 3 cents for most of the day. But market sources report that in end-of-day trading in the S&P Global Platts market on close process, known informally as the “window,” the differential moved up to minus 1.75 cts/gallon.
Those sorts of movements are generally captured in the rack price. A move in the spread from negative 5.4 to negative 1.75 cents should find itself into the rack price, along with the upward movement in the CME price.
Going forward, the two largest issues facing diesel prices are how fast refineries will come back online and whether any suffered lasting damage due to the cold. Gulf Coast refineries are hardened against hurricanes but often have less-than-full protection against the occasional cold snap. That will take several days to sort out.
The second is how quickly the petroleum supply chain can get up and running and get tanker trucks out to the retail outlets to fill the traffic that presumably will start moving in the next day or two as temperatures rise.
Another area of trucking demand that is set to return will be in the oil patch. Estimates are that as much as 4 million barrels a day of oil production in Texas was shut in due to system failures, which would have cut down on demand for trucking in the Permian Basin in West Texas. However, there are estimates that half of that might return by the weekend.