Diesel Futures Advance on Forecast Frigid Weather Will Return

Feb 19, 2014 3:56 pm ET

Feb. 19 (Bloomberg) -- Diesel futures rose to the highest this month as the frigid temperatures that have reduced U.S. distillate inventories were projected to return.

Prices climbed 1.5 percent. Temperatures from the Midwest to the Northeast will plummet through next week and the cold will linger into March, said Matt Rogers, president of Commodities Weather Group LLC. The Energy Information Administration will probably report tomorrow that supplies of distillates, including heating oil and diesel, fell 2.1 million barrels last week, according to the median estimate of 10 analysts in a survey by Bloomberg.

“Continued draws of distillate inventories have been supporting prices and this trend is likely to continue over the next few weeks as another blast of cold air hits the Northeast,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Ultra low sulfur diesel for March delivery rose 4.51 cents to $3.1468 a gallon on the New York Mercantile Exchange. Trading volume was 12 percent above the 100-day average as of 2:37 p.m.

For the Midwest and Great Lakes region, including Chicago, readings are expected to fall 15 degrees Fahrenheit (8 Celsius) below normal from Feb. 24 to 28, said Rogers, based in Bethesda, Maryland. In the Northeast, temperatures are forecast to be at least 8 degrees lower than the average.

Diesel also rose as natural gas surged to a five-year high, which may push spot prices up in the Northeast and encourage gas-fired power plants to switch to heating oil. March futures jumped 11 percent to settle at $6.149 per million British thermal units. Diesel is up 2.3 percent this year while natural gas has jumped 45 percent.

Power Plants

“On the East Coast, whenever natural gas goes up, we’ve seen a lot of power plants switch to heating oil,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London.

The EIA is scheduled to report last week’s inventories tomorrow at 11 a.m. in Washington, a day later than usual because of the Presidents Day holiday in the U.S. Feb. 17. Distillate supplies around New York Harbor, the delivery point for futures contracts, were the lowest since April 2003 in the week ended Feb. 7, according to EIA data. Nationwide supplies of distillates were the lowest seasonally since 2005.

“Inventories are so low, if you keep getting these cold fronts, you need prices to go up to balance the market,” Sen said.

Gasoline Slips

March-delivery gasoline declined 0.76 cent to $2.8247 a gallon, the first decline in six days, on volume that was 6.5 percent above the 100-day average.

Today’s loss follows the longest rally since Dec. 20, during which gasoline gained 3.9 percent. Futures touched $2.8471 yesterday, the highest intraday level since Sept. 9, amid speculation that refinery maintenance will reduce inventories.

Gasoline supplies probably fell 850,000 barrels last week, according to the survey.

“The turnarounds are started and that was part and parcel of the rally,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. ’’But gasoline stocks aren’t short by any means. Gasoline made a really big move and couldn’t sustain gains.’’

The average U.S. pump price gained 0.9 cent to $3.375 a gallon, according to data from Heathrow, Florida-based AAA. Prices have risen 12 consecutive days to the highest since Oct. 2, and are 37.3 cents below a year earlier.

--With assistance from Brian K. Sullivan in Boston. Editors: David Marino, Charlotte Porter