Diesel Futures Advance as Winter Storm to Drain Fuel Stockpiles

Jan 22, 2014 5:19 pm ET

Jan. 22 (Bloomberg) -- Ultra low sulfur diesel futures rose to the highest level this year on speculation that the season’s worst U.S. East Coast storm will boost demand and that distillate supplies fell last week.

Temperatures in New York, Boston and Washington won’t top the freezing point of 32 degrees Fahrenheit (zero Celsius) until Jan. 25, while Chicago will be 8 degrees or more below that level until Feb. 1, AccuWeather Inc said. U.S. distillate stockpiles, already 17 percent below the five-year average, are projected to have dropped 500,000 barrels, according to the median estimate of 10 analysts in a survey by Bloomberg.

“Supplies have been tight, and now there’s the idea we have more heating demand,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We need to show a decline in inventories tomorrow to keep this momentum.”

ULSD for February delivery rose 2.32 cents, or 0.8 percent, to $3.0379 a gallon on the New York Mercantile Exchange, the highest settlement since Dec. 31. Trading volume was 25 percent above the 100-day average as of 2:57 p.m.

U.S. distillate stockpiles, including diesel and heating oil, fell 1.02 million barrels to 124 million in the week ended Jan. 10, Energy Information Administration data show. The EIA is scheduled to report last week’s inventories at 11 a.m. tomorrow, a day later than usual because of the Jan. 21 Martin Luther King holiday in the U.S.

Natural Gas

Natural gas futures rose 25.8 cents to $4.689 per million British thermal units on the Nymex, the highest settlement since June 2011. Natural gas stockpiles as of Jan. 10 were 14.9 percent below the five-year average and 20.7 percent below a year earlier, EIA data show.

“The market players are saying we’re not going to have an issue with heating oil supplies in contrast to natural gas,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

Average temperatures in the eastern U.S. are expected to be at least 8 degrees below normal from today until Jan. 31, said Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland. The cold follows on the heels of a snowstorm yesterday that left record accumulations for the date from Washington to New York City.

“Inventories of heating oil are below the five-year average so the market is sensitive to the weather,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Diesel’s crack spread versus West Texas Intermediate crude, a rough measure of refining profitability, narrowed 50 cents to $28.48 a barrel. The premium over European benchmark Brent dropped 28 cents to $16.94.

Gasoline Gains

February-delivery gasoline advanced 5.65 cents, or 2.2 percent, to $2.6771, the highest settlement since Jan. 7. Trading volume was 12 percent below the 100-day average.

Stockpiles of the motor fuel probably rose 1.75 million barrels last week, according to the survey. Supplies of the motor fuel increased 6.18 million barrels to an 11-month high of 233.1 million the prior week.

Gasoline gained on speculation that the lower-than-normal temperatures and snow may disrupt production. Gasoline output slid to the lowest level since September 2008 in the week ended Jan. 10, according to EIA data.

PBF Energy Inc.’s Paulsboro, New Jersey, refinery reported today that sulfur plants tripped offline because of weather.

Work Planned

An average of 550,000 barrels a day of processing capacity across the U.S. will be offline for planned work in January, 1.1 million in February and 1.5 million in March, according to Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London.

“Gasoline’s strength is more speculative in nature,” said Tim Evans, an energy analyst at Citi Futures in New York. “There’s the worry that U.S. refinery production of gasoline is slowing down. We know there is seasonal maintenance under way or scheduled. Throw in cold temperatures and reports here and there like PBF refinery in New Jersey and, maybe, the market is missing some supply.”

The motor fuel’s crack spread versus WTI widened 54 cents to $16.17 a barrel while its premium to London-traded Brent crude gained 76 cents to $4.63.

The average U.S. pump price rose 0.4 cent to $3.283 a gallon, the first increase since Jan. 10, according to data from Heathrow, Florida-based AAA.

--With assistance from Brian K. Sullivan in Boston. Editors: David Marino, Margot Habiby