Diesel Futures Rise Most in Three Weeks as Cold Cuts Supplies

Jan 15, 2014 3:49 pm ET

Jan. 15 (Bloomberg) -- Diesel futures rose the most in three weeks in New York as stockpiles fell and cold weather was forecast to sweep across the eastern U.S., boosting demand for heating fuel.

Futures climbed 1.5 percent. U.S. distillate inventories dropped 1.02 million barrels to 124 million in the week ended Jan. 10, U.S. Energy Information Administration data show. Below-normal temperatures are expected to cover the eastern half of the U.S. from Jan. 19 through Jan. 28, according to MDA Weather Services.

“Diesel is showing strength on inventories and weather- related issues,” Tom Finlon, director of Energy Analytics Group Ltd., said by phone from Jupiter, Florida. “There’s colder weather that’s coming and it will definitely boost demand.”

Ultra low sulfur diesel for February delivery rose 4.33 cents to $2.9796 a gallon on the New York Mercantile Exchange, the biggest gain since Dec. 20 and the highest settlement since Jan. 2. Trading volume was 92 percent higher the 100-day average at 3:23 p.m. Prices have declined 3.2 percent this year.

Diesel’s crack spread versus West Texas Intermediate crude, a rough measure of refining margin, climbed 24 cents to $30.97 a barrel. The premium over European benchmark Brent on the ICE Futures Europe exchange increased $1.08 to $18.01.

Higher Demand

U.S. demand for distillate fuels, including heating oil and diesel, climbed 702,000 barrels a day to 3.72 million last week, the highest level since Dec. 20, according to EIA data. 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.

Chicago’s low temperature on Jan. 27 will drop to 4 degrees Fahrenheit (minus 16 Celsius), 14 below normal, according to AccuWeather Inc. in State College, Pennsylvania. On Jan. 22, New York’s reading will be 11 lower than average at 16 degrees and Atlanta will be 5 below normal at 26 degrees.

Gasoline for February delivery rose 0.4 cent to settle at $2.6264 a gallon on the Nymex. Trading volume was 10 percent below the 100-day average. Prices have slumped 5.7 percent this year.

U.S. inventories of the fuel surged 6.18 million barrels to 233.1 million last week, a third consecutive gain and the highest level in 11 months, according to EIA data. Demand tumbled to 8.02 million barrels a day, the lowest since Jan. 27, 2012.

“There have been a few consecutive weeks of sizable builds in gasoline stockpiles and there’s no demand to eat that up,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The motor fuel’s crack spread versus WTI narrowed by $1.41 to $16.14 a barrel. Gasoline’s premium to Brent crude fell 57 cents to $3.18.

Regular gasoline at the pump, averaged across the U.S., fell 0.2 cent to $3.306 a gallon, according to Heathrow, Florida-based AAA. That was the fourth consecutive decline and the lowest level since Dec. 27, the data showed.

--Editors: David Marino, Charlotte Porter