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US Diesel Rail Shipments Surge as Iran Conflict Spurs Arbitrage, Bloomberg Analysis Says

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US demand for rail-delivered shipping diesel surged in March as the conflict in Iran disrupted global fuel flows, prompting traders to seek alternative routes and storage options, a Bloomberg analysis showed on Thursday.

Requests for distillate storage in tanks connected to rail networks jumped sharply to 250,000 barrels in March, up from 30,000 in February and none in January, Bloomberg said, citing data from storage clearinghouse The Tank Tiger. All the demand came from the East and Gulf Coasts, key export hubs. Early April figures indicate the trend is continuing, with an additional 125,000 barrels in storage requests already recorded.

The spike in rail-linked storage demand points to a growing effort by traders and refiners to capitalize on arbitrage opportunities. With Midwest diesel prices trading at a steep discount to coastal markets, firms are increasingly moving fuel to export hubs where tighter supplies have lifted prices.

The shift comes as conflict in the Middle East, including disruptions around the Strait of Hormuz, constrains global supplies of crude and refined products. In response, international demand for US diesel has strengthened, with exports expected to approach record levels, Bloomberg said, citing information from energy analytics firm Vortexa.

While pipelines remain the primary method for transporting fuel domestically, capacity and routing limitations mean they cannot always deliver Midwest product directly to coastal export terminals. Rail and barge shipments, though typically more expensive, are becoming economically viable under current market conditions.

Rail deliveries of petroleum products totaled 9,112 carloads in March, nearly 10% higher than a year earlier, underscoring the shift in logistics.

Declining inventories along the Gulf Coast and stronger overseas demand have tightened regional markets, occasionally pushing physical diesel prices above futures benchmarks, an uncommon development for a region usually characterized by ample supply.

Bloomberg said industry analysts predict the longer disruptions persist in the Middle East, the more likely it is that these atypical trade patterns, particularly the use of rail to move fuel to coastal export hubs, will continue.

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