Diesel Futures Advance as Supplies Fall Amid Higher Demand

Dec 27, 2013 4:51 pm ET

Dec. 27 (Bloomberg) -- Ultra low sulfur diesel jumped to a three-month high in New York after a government report showed distillate supplies dropped more than expected as demand rose.

Futures advanced 0.9 percent. Supplies of distillates, including diesel and heating oil, fell 1.85 million barrels to 114.1 million last week, the Energy Information Administration said. A Bloomberg survey projected a drop of 1 million. Demand rose 2 percent to 4.17 million barrels a day, a five-week high.

“Distillate continues to be supported by cold weather in the Northeast and continued declines in inventories as the U.S. supplies world markets with diesel fuel,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

ULSD for January delivery gained 2.93 cents to $3.1241 a gallon on the New York Mercantile Exchange, the highest settlement since Sept. 6. Trading volume was 7.1 percent below the 100-day average. The futures gained 1.5 percent this week and have risen 2.6 percent this year.

The fuel’s crack spread versus West Texas Intermediate crude narrowed 8 cents to $29.55 a barrel. The premium over European benchmark Brent increased 49 cents to $17.69.

Gasoline stockpiles dropped 614,000 barrels to 219.9 million, the first decline in five weeks. The Bloomberg survey projected that inventories would fall 1.1 million barrels. Demand rose 1.8 percent while output jumped 4.3 percent to 9.72 million barrels a day, a record in data going back to 1982.

Production Growth

“Production of gasoline was huge, somewhat offsetting the increase in demand,” Lipow said. “That trend is expected to continue as we move past the holidays and into January, when gasoline demand declines precipitously.”

Gasoline for January delivery fell 0.39 cent to settle at $2.8161 a gallon on trading volume that was 25 percent below the 100-day average. The futures rose 1.2 percent this week and have climbed 0.1 percent this year.

Gasoline stockpiles in PADD I, which includes New York Harbor, the delivery point for futures contracts, declined 300,000 barrels to 56.2 million. Imports slid 24 percent to 429,000 barrels a day, the lowest in six weeks.

“While today’s data is supportive, the draws are unlikely to be sustained,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “Imports were much lower than usual. Any increase from here and gasoline stocks would build.”

The motor fuel’s crack spread versus WTI, a rough measure of refining profitability, narrowed $1 to $17.68 a barrel. Gasoline’s premium to London-traded Brent crude slipped 43 cents to $5.82.

The average U.S. pump price rose 1.5 cents to $3.283 a gallon, the eighth consecutive increase and highest price since Nov. 27, according to Heathrow, Florida-based AAA.

--Editors: Charlotte Porter, Margot Habiby