Diesel Futures Surge to 11-Month High as Fuel Supplies Tighten

Jan 30, 2014 5:15 pm ET

Jan. 30 (Bloomberg) -- Diesel futures jumped to an 11-month high on speculation supplies around New York Harbor, already the lowest since 2008, may tighten further on refinery shutdowns and as Chicago spot values climbed on supply concern.

The largest refinery on the U.S. East Coast, Philadelphia Energy Solutions’ Philadelphia complex, lost power yesterday and decided to accelerate a turnaround, keeping some units shut for weeks, according to a person familiar with operations. February diesel futures settled at an 18.95-cent premium to March contracts on the New York Mercantile Exchange, the largest backwardation in 14 years.

“We had a big draw in distillates,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Fundamentals seem to be tightening.”

Ultra low sulfur diesel for February delivery rose 3.54 cents, or 1.1 percent, to $3.217 a gallon on the Nymex, the highest settlement since Feb. 14. Volume was 2.7 percent above the 100-day average as of 4:02 p.m.

February diesel and gasoline contracts will expire at the end of floor trading tomorrow. The more actively traded March contract was up 0.71 cent to $3.0275 a gallon.

Supplies of diesel and heating oil in PADD 1B, which includes New York, the delivery point for futures contracts, slid 7.7 percent last week as frigid weather gripped the region.

Cold Weather

The cold that boosted heating fuel demand may continue. Temperatures from the Midwest to the East Coast will be below normal from Feb. 5 to Feb. 13, according to the National Weather Service’s Climate Prediction Center.

“Heating oil continues to be supported by cold weather,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “Supplies remain tight in New York Harbor due to high demand and refinery problems.”

March-delivery diesel’s crack spread versus WTI, a rough measure of refining profitability, narrowed 57 cents to $28.93 a barrel. The premium over European benchmark Brent rose 20 cents to $19.21.

Chicago diesel climbed to the highest level since June as Husky Energy Corp.’s refinery in Lima, Ohio, stopped production of the fuel after a hydrotreater was shut for repairs, according to a person familiar with operations today. The 160,000-barrel- a-day Lima plant is running between 100,000 and 120,000 barrels a day as workers struggle to keep pipes thawed amid freezing temperatures, the person said.

Refinery Outages

Cold-related Midwest refinery outages and the large premium for the February futures over March have contributed to a shortage of diesel in the Midwest and higher spot prices, said Steve Mosby, a partner at ADMO Energy LLC, a Kansas City, Missouri, supply consultancy.

“There is no fuel in storage, Mosby said.

Diesel in Chicago strengthened by 14 cents to 9 cents a gallon over futures at 4:12 p.m., according to data compiled by Bloomberg. It’s the highest level since June 14.

February-delivery gasoline rose 0.17 cent to $2.6626 on volume that was 1.8 percent below the 100-day average. March gasoline advanced 0.57 cent to $2.6743.

Prices jumped to $2.6787 in electronic trading after the close of floor trading as Phillips 66 was said to reduce rates on a fluid catalytic cracker to repair a pump at the Bayway refinery in Linden, New Jersey, the plant closest to New York Harbor.

The motor fuel’s crack spread versus WTI narrowed 63 cents to $14.09 a barrel. Its premium to London-traded Brent crude increased 14 cents to $4.37.

The average U.S. pump price fell 0.2 cent to $3.275 a gallon, the sixth consecutive decrease, according to data from Heathrow, Florida-based AAA. Prices are 11.9 cents below a year earlier.

--Editors: David Marino, Charlotte Porter