Analysis: $8 Cal. Diesel May Only Be Start of Saudi Crisis


   
Barani Krishnan
DTN Refined Fuels Market Reporter

   SECAUCUS, NJ (DTN) -- Heightening strikes on Saudi Arabia's key energy 
infrastructure are sending ripples across the global crude complex, with U.S. 
refiners in the West Coast, particularly, bearing a supply brunt that has 
already driven Californian diesel to record highs above $8 gallon.

   The most severe supply pressure is faced by refiners in the PADD 5 while 
consumers in the region absorb the greatest financial strain. But the impact is 
also being felt across the United States as the fallout from the Saudi supply 
squeeze cascades across U.S. regional fuel hubs as refining margins and pump 
prices reach historical territory.

   Soaring fuel prices have also yielded record refining margins for operators 
like Marathon, Phillips 66, and BP, as Diesel crack surpass historic $100 bbl 
thresholds.

   Californian retail diesel leaped 27.5cts during the week ended September 14 
to an all-time high of $8.039 gallon, while the West Coast average soared 
26.3cts to $7.250 -- beating the national record of $6.285, Energy Information 
Administration data showed. Los Angeles ULSD rack prices, meanwhile, surged 
33.36cts to average $5.3058 gallon on the week.

   The dramatic price action on the West Coast reflects deep physical 
vulnerabilities. Geographically isolated from inland pipeline networks, 
California and Pacific Northwest processors rely heavily on waterborne 
medium-sour crude imports, including Saudi Light.

   With sustained Houthi attacks forcing the shut-in of Saudi Aramco's 7 
million bpd East-West pipeline and choking off the Red Sea port of Yanbu, PADD 
5 refiners are stranded with dwindling baseline allocations. Processors are 
being forced to bid aggressively for alternative, higher-freight barrels from 
Latin America and West Africa, passing these steep crude acquisition costs 
directly to end-users.

   "West Coast refiners have already weaned themselves off Saudi oil earlier 
this year," DTN analyst Karim Bastati said, noting that Chevron's 245,000 bpd 
Richmond refinery, for instance, received its last delivery in April, replacing 
the Saudi stream with sour grades from Canada and Ecuador.

   "Still, a tightening supply of the type of crude needed forces refiners to 
pay higher premiums to secure a cargo on the spot market before they can set up 
long term delivery contracts," Bastati added.

   Nationwide Crunch

   As such, recent buyers of Saudi oil -- including Motiva's 630,000 bpd Port 
Arthur plant in Texas and PBF's 105,000 bpd Paulsboro refinery in New Jersey -- 
will likely have to look for alternatives before Aramco's tanks in Yanbu and 
Sidi Kerir run dry from an extended shutdown of the East-West pipeline. On the 
East Coast, DTN data showed New York Harbor ULSD rack prices climbing 37.24cts 
to average $5.0596 gallon over the current week.

   While PADD 5 absorbs the direct physical hit, refiners in the central and 
southern U.S. are benefiting from secondary market dynamics -- processing 
cheaper domestic crude while selling products into a soaring global market.

   In the Midwest, refiners remain physically protected from Middle Eastern 
disruptions due to direct pipeline access to Western Canadian Select and Bakken 
crudes. But both retail and rack prices have tracked global futures higher. 
PADD 2 retail diesel climbed 30.4 cents over the past week to $6.250 gallon, 
the EIA reported. On the rack front, DTN data showed Chicago ULSD rising 
82.04cts, or 18.02%, to $5.3732 gallon over the week ended September 15.

   In PADD 3, abundant Permian shale supply insulates most operators from 
physical crude shortfalls, though Saudi Aramco-owned Motiva now faces 
logistical rerouting challenges or domestic crude substitution. Reflecting 
broader Gulf Coast product pull, DTN data showed USGC ULSD rack prices 
advancing 39.11cts to average $5.0159 gallon.

   The EIA reported that PADD 3 diesel gained 27.3cts over the past week to 
$6.027 gallon as European and Asian buyers pulled U.S. middle distillates 
overseas to backfill international shortfalls.

   With U.S. refinery utilization hovering near maximum capacity -- at 96.8% 
during the week ended September 4, as per EIA data -- middle distillate stocks 
remain near historic seasonal lows. Higher demand for diesel in PADD 2 as the 
Midwest enters fall season harvesting and extended Saudi export outages are 
only likely to keep refining margins and retail pump prices elevated.

    

    




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