NEW YORK - Differentials for diesel in the Midwest are expected to slip this week as harvest demand wanes, Midwest traders said Monday.
It would appear that we've about turned the corner on that... I don't think we see it 3 cents lower by Wednesday, but by next Friday, I think we're going to see it quite a bit cheaper, one Midwest broker said.
Soybean harvest was nearing completion in the Midwest while more favorable weather for the remaining corn harvest is expected this week, according to DTN Meteorlogix.
I think we should see diesel demand decline this week. Most of the grain is out of the field in Nebraska and the western half of Iowa, another Midwest trader said.
On Monday, differentials for ultra-low sulfur diesel in the Midwest's Group Three market dipped slightly, pegged at 0.50 cent over the December heating oil board, down from 0.75 cent over in early trading.
However, demand for diesel may recover somewhat by the end of the year.
I would think we would see a bit of a demand pop mid to late December as the farmer will have some money to spend by the end of the year and will want to fill storage tanks, the Midwest trader said.
Gulf Coast distillates remain depressed as the Midwestern diesel harvest demand wanes and weather in the Northeast is not yet cold enough to draw down heating oil stocks.
In the Gulf, heating oil remains trading at a deep discount to the heating oil futures screen, and even a cold weather forecast for New York area by the end of the week is not seen as enough to move prices up.
The arb for ultra-low sulfur diesel to Europe is closed and despite cold temperatures there, any pickup in demand is seen being supplied by regional storage tanks.
Arbitrage levels between the U.S. and Europe are expected to be limited to system cargoes, traders on both side of the Atlantic said.
In New York Harbor, gasoline differentials have held flat despite the fluctuating arb, with only one Eurograde enterprise cargo on offer at 3.00 cents under the screen, a level too high to entice buyers, traders said.
Few cargoes of gasoline are seen in the pipeline going forward.
Just bits and pieces, said one shipping source.
(Additional reporting by Ikuko Kurahone in London) (Reporting by Rebekah Kebede in New York and Janet McGurty in Toronto)