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Midwest Diesel at 4-Month High as BP Whiting Work Begins

Midwest diesel fuel strengthened to the highest level in more than four months versus futures after BP Plc was said to have started maintenance on a unit at the largest refinery in the area.

BP’s 420,000-barrel-a-day Whiting, Indiana, refinery is conducting planned work on a desulfurization unit for an unknown duration, according to a person familiar with operations who asked not to be identified because the information isn’t public. A 225,000-barrel-a-day crude unit, the largest at the site, is also undergoing maintenance.

“The desulfurization process is one of the final steps before you put diesel to the market so if you lose that capacity, you can be out of diesel pretty quickly,” Steve Mosby, vice president of supply consultant ADMO Energy LLC, said in a phone interview from Kansas City, Missouri. “Midwest supplies are already tight.”

Ultra-low-sulfur diesel in the Midwest, or Group 3 region, gained 1.75 cents to 11.13 cents above heating oil futures on the New York Mercantile Exchange at 4:05 p.m., the biggest spread since Oct. 22. The same fuel was up 0.5 cent at a 13-cent premium in Chicago.

The work at BP Whiting may further drain Midwest distillate supplies, which the Energy Information Administration data show are hovering at the lowest level for this time of year since 2006. Stockpiles of distillates including diesel fuel and heating oil totaled 30.7 million barrels in the week ended Feb. 22, according to EIA.

“Diesel is going to have some legs,” Mosby said. “The cracks are so good there won’t be any diesel in inventory. Refineries are selling everything they got.”

The 3-2-1 crack spread, or measure of refining profitability for gasoline and diesel based on West Texas Intermediate in Cushing, Oklahoma, fell 26 cents to $33.37 a barrel, up from $27.07 a barrel a month earlier, according to data compiled by Bloomberg.

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