Diesel Rebounds as U.S. East Coast Weather Forecasts Turn Colder

Jan 28, 2014 5:05 pm ET

Jan. 28 (Bloomberg) -- Diesel rebounded from an earlier decline as weather forecasts showed frigid weather along the U.S. East Coast will persist in February, boosting demand for heating oil.

Prices climbed 1 percent. Winter storm warnings extend from Texas to New Jersey. While temperatures may moderate as February starts, the month may end up colder than normal, said Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland. The National Weather Service’ 6- to 10-day forecast projects below-normal temperatures Feb. 2 to Feb. 6.

“The forecasts have changed and it’s looking like more of a widespread cold and the duration may be slightly longer than expected,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York.“That probably helped to rally heating oil and traders may be wary of further dislocations in the crude market.”

Ultra low sulfur diesel for February delivery rose 2.94 cents to settle at $3.1218 a gallon on the New York Mercantile Exchange. Volume was 26 percent above the 100-day average as of 4:10 p.m. February diesel and gasoline contracts will expire at the end of floor trading on Jan. 31.

The more actively traded March contract climbed 2.72 cents to $2.9939.

MDA Weather Services in Gaithersburg, Maryland, predicted colder-than-normal weather across most of the U.S. through Feb. 11.

Inventories Decline

Prices extended gains to an intraday high of $3.1332 after the industry-funded American Petroleum Institute reported that distillate stockpiles declined 1.79 million barrels last week. The Energy Information Administration will probably say tomorrow that inventories fell 2.55 million barrels, according to the median estimate of 10 analysts in a survey by Bloomberg.

Supplies around New York Harbor, the delivery point for futures contracts, slid 6.5 percent to 17 million barrels in the week ended Jan. 17, the least since May 9, 2008, EIA data show. Nationwide, stockpiles slipped 3.21 million barrels to 120.7 million barrels.

Futures also followed oil higher amid speculation that signs the economic recovery is stalling will cause the Federal Reserve to slow its plans to ease economic stimulus. West Texas Intermediate crude jumped 1.8 percent to a four-week high of $97.41 a barrel on the Nymex.

Durable Goods

U.S. durable goods orders slid 4.3 percent in December, the most in five months, the Commerce Department reported today. The Federal Open Market Committee began its last meeting under Chairman Ben S. Bernanke today. Fed policy makers said in December that the central bank would begin to pare the pace of its monthly bond buying by $10 billion to $75 billion beginning this month.

“We got a pop on the durable goods number and on speculation that the Federal Reserve will slow down their tapering,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

March-delivery diesel’s crack spread versus WTI, a rough measure of refining profitability, narrowed 55 cents to $28.33 a barrel. The premium over European benchmark Brent rose 42 cents to $18.33.

February-delivery gasoline climbed 0.61 cent to settle at $2.6278 a gallon on volume that was 15 percent below the 100-day average. March gasoline advanced 0.47 cent to $2.6376.

The EIA will probably report tomorrow that stockpiles of gasoline rose 1.6 million barrels, according to the survey estimate. The API said supplies climbed 363,000 barrels.

The motor fuel’s crack spread versus WTI narrowed $1.49 to $13.37 a barrel. Its premium to London-traded Brent crude slipped 52 cents to $3.37.

The average U.S. pump price fell 0.3 cent to $3.279 a gallon, the fourth consecutive decrease, according to data from Heathrow, Florida-based AAA.

--With assistance from Brian K. Sullivan in Boston and Christine Buurma in New York. Editors: David Marino, Charlotte Porter