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Chicago Diesel Near 6-Month Low on Supply, Demand Concern

July 17 (Bloomberg) -- Chicago diesel fuel hovered near the biggest discount to futures in almost six months as supplies soared and Midwest refiners sold product on lower demand.

Ultra-low-sulfur diesel fuel in Chicago gained 0.5 cent to 8 cents a gallon below futures on the New York Mercantile Exchange at 4:16 p.m., after touching 9 cents, the largest discount since Jan. 24, according to data compiled by Bloomberg.

The differential widened after a government report showed distillate stockpiles gained 1.25 million barrels to 29.3 million in the week ended July 12, the highest seasonal level since 2010, according to Energy Information Administration data. Stockpiles typically build during the summer in preparation for the heating season, the EIA said in a summer fuels outlook report.

Nationwide, demand for diesel and heating oil slid 26,000 barrels to 3.82 million barrels a day, the lowest level since May 31, data showed.

“Two Chicago refiners are selling into the low demand,” said Ed Malloy, president of Danaher Oil Co. in Fairfield, Iowa.

Conventional, 85-octane gasoline, or CBOB, in Chicago gained 1.5 cents to 9 cents a gallon under futures after earlier weakening to a 12-cent discount.

Inventories of motor fuel in the region, referred to as PADD 2, climbed 257,000 barrels to 48 million, the first increase in three weeks, EIA data showed. The fuel traded at a premium of 16.25 cents to CBOB on the Gulf Coast.

‘Sky High’

The 3-2-1 crack spread for Chicago refiners, a rough measure of refining margins for gasoline and diesel based on West Texas Intermediate oil in Cushing, Oklahoma, fell 24 cents to $20.05 a barrel.

The discount for Gulf Coast CBOB widened for a sixth day to 26.25 cents a gallon below futures. Gasoline stockpiles along the Gulf surged 2.06 million barrels to 78.2 million barrels as area refineries operated around 95 percent of capacity for a third consecutive week, according to EIA data.

“We’re running refineries sky high,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.

Ultra-low-sulfur diesel on the Gulf slipped 0.13 cent to a discount of 3.13 cents a gallon.

The 3-2-1 crack spread on the Gulf, also based on WTI, slipped $1.12 to $16.24 a gallon. The same spread based on Light Louisiana Sweet oil retreated $1.77 to $9.69 a barrel.

To contact the reporter on this story: Christine Harvey in New York at charvey32@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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