Diesel Surges to Five-Month High as N.Y.-Area Supplies Shrink

Jan 29, 2014 4:20 pm ET

Jan. 29 (Bloomberg) -- Diesel futures jumped to a five- month high as distillate inventories around New York Harbor slid to the lowest level since 2008, according to an Energy Information Administration report.

Supplies in PADD 1B, which includes New York, the delivery point for futures contracts, slid 7.7 percent to 15.7 million barrels last week. Today, the largest refinery in the area, Philadelphia Energy Solutions’ Philadelphia plant, lost power and decided to accelerate a turnaround, keeping some units shut for weeks, according to a person familiar with operations.

“Philly only exacerbates the situation for supplies,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Ultra low sulfur diesel for February delivery rose 5.98 cents, or 1.9 percent, to $3.1816 a gallon on the New York Mercantile Exchange, the highest settlement since Aug. 29. Trading volume was 27 percent above the 100-day average as of 3:51 p.m.

Nationwide, distillate stockpiles slipped 4.58 million barrels to 116.2 million, more than the 2.55-million drop estimated in a survey by Bloomberg. Inventories are 11 percent below a year earlier and the lowest seasonal level since 2001.

Higher prices amid the tighter supply drew cargoes to the East Coast. Imports which jumped 70 percent to 314,000 barrels a day, the most since February 2010.

Restarting Units

At Philadelphia, the refinery is trying to restart units at the larger Girard Point section. That plant lost steam to power its units earlier today when its three boilers shut down, a second person familiar with the situation said, who asked not to be identified because the information is not public. The refinery was able to restart a boiler and has been attempting to start units with the one boiler in operation, the person said.

“PADD 1 inventories are already really tight,” said Joe Posillico, senior vice president of energy derivatives at Jefferies Bache LLC in New York.

The frigid temperatures and winter storms that boosted heating fuel demand the past several weeks may continue. Cold will dominate the central U.S. and Canada through mid-February, possibly broken up by a series of storms that may bring temperature swings, said Matt Rogers, president of Commodity Weather Group LLC.

February diesel and gasoline contracts will expire at the end of floor trading on Jan. 31. The more actively traded March contract was up 2.65 cents to $3.0204 a gallon.

Crack Spreads

March-delivery diesel’s crack spread versus WTI, a rough measure of refining profitability, widened $1.16 to $29.50 a barrel. The premium over European benchmark Brent rose 67 cents to $19.01.

February-delivery gasoline climbed 3.31 cents, or 1.3 percent, to $2.6609 on volume that was 14 percent below the 100- day average. March gasoline advanced 3.1 cents to $2.6686.

Gasoline inventories fell 819,000 barrels to 234.4 million. The survey estimated an increase of 1.6 million barrels.

The motor fuel’s crack spread versus WTI widened $1.35 to $14.72 a barrel. Its premium to London-traded Brent crude increased 86 cents to $4.23.

The average U.S. pump price fell 0.2 cent to $3.277 a gallon, the fifth consecutive decrease, according to data from Heathrow, Florida-based AAA. Prices are 8.7 cents below a year ago.

--Editors: David Marino, Richard Stubbe