Diesel Reverses Early Advance in New York as Crude Oil Tumbles

Jan 06, 2014 4:33 pm ET

Jan. 6 (Bloomberg) -- Ultra low sulfur diesel settled little changed, erasing an earlier gain, after crude oil slid to session lows near close of floor trading.

Futures rose 1.5 percent earlier on speculation that a refinery fire in Brazil may increase U.S. exports and that frigid weather in the U.S. will increase demand for heating fuel. Prices later fell as West Texas Intermediate oil hit an intraday low of $93.20 a barrel at 2:27 p.m.

“Diesel had good movements earlier today but moved downward with crude oil into the close,” said Tom Finlon, director of Energy Analytics Group Ltd. in Jupiter, Florida.

Ultra low sulfur diesel for February delivery fell 0.06 cent to settle at $2.9388 a gallon on the New York Mercantile Exchange after touching $2.9825. Volume was 21 percent above the 100-day average at 3:41 p.m. Futures were up 1.42 cents, or 0.5 percent in electronic trading.

WTI for delivery the same month slid 53 cents, or 0.6 percent, to $93.43 a barrel, the lowest settlement since Nov. 29 and the fifth consecutive decline.

Earlier, diesel advanced after Petroleo Brasileiro SA’s Reduc plant in Duque de Caxias, Brazil, had a fire in a coker on Jan. 4. That followed a blaze at another Petrobras plant in late November. The Reduc plant is expected to return to service on Jan. 8, according to Brazil regulator ANP.

Second Fire

“The second fire in a month for Petrobras increases the need for more imports of gasoline and diesel from the U.S.” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “If you’re a paper trader and you want to get exposure to weather, you will trade ULSD or gasoil, and the cold bolsters demand for heating fuel.”

The coldest air in almost 20 years is sweeping across the U.S. from the Midwest toward the East Coast.

Wind chills plunged past 60 degrees below zero Fahrenheit (minus 51 Celsius) in parts of the upper Midwest. Chicago’s high today won’t reach zero and may just hit that tomorrow, according to the National Weather Service. New York City, which had a pre- dawn reading of 54, will drop to 6 by tomorrow, while the temperature at Dallas Love Field was 16 at 7 a.m. local time.

Ultra low sulfur diesel is traded as a proxy for heating oil, which is used by about one-quarter of households in the U.S. Northeast. The freezing temperatures spur fuel demand as households turn up thermostats to heat homes and businesses, and as utilities turn on units fueled by distillate and jet fuel, which are usually more expensive than natural gas.

Cold Worries

“People might also be concerned that the cold will impact refinery operations,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “I expect in the Houston area there will be some run cuts overnight. When it’s cold outside, the equipment doesn’t run so well.”

Diesel’s crack spread versus West Texas Intermediate crude, a rough measure of refining profitability, widened 50 cents to $30 a barrel. The premium over European benchmark Brent rose 13 cents to $16.70.

Gasoline for February delivery fell 0.28 cent to $2.646 a gallon on trading volume that was 4.2 percent above the 100-day average.

The motor fuel’s crack spread versus WTI widened 41 cents to $17.70 a barrel. Gasoline’s premium to London-traded Brent crude climbed 4 cents to $4.40 a barrel.

The average U.S. pump price was unchanged at $3.317 a gallon, according to Heathrow, Florida-based AAA. Prices are 1.8 cents above a year earlier.

--With assistance from Christine Harvey in New York. Editors: David Marino, Margot Habiby