Diesel Futures Tumble as Imports Boost U.S. East Coast Supplies

Feb 21, 2014 4:10 pm ET

Feb. 21 (Bloomberg) -- Diesel futures slid the most since June as U.S. East Coast distillate inventories rose for the first time in six weeks and imports jumped to a four-year high.

Prices slipped 2.5 percent in the first decline in six days. Supplies of distillates in the region, including heating oil and diesel, rose 134,000 barrels last week to 27.5 million, Energy Information Administration data show. Imports to the East Coast jumped 23 percent to 326,000 barrels a day, the most since February 2010.

“East Coast stocks had been the tightest part of the market,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “We’re expecting more distillates to arrive from Europe.”

Ultra low sulfur diesel for March delivery fell 7.85 cents to settle at $3.0972 a gallon on the New York Mercantile Exchange, the biggest drop for front-month futures since June 20, not counting contract rollover days. Prices increased 0.7 percent this week. Trading volume was 36 percent above the 100- day average at 3 p.m.

The premium of March over April futures narrowed to 6.03 cents from 9.43 cents yesterday. ULSD’s premium to March gasoline narrowed 6.52 cents to 26.59 cents.

The premium of front-month ULSD over gasoil on ICE Futures Europe exchange jumped to almost 37 cents a gallon on Jan. 31, making exports to the U.S. more attractive. It takes about 20 days for a cargo to reach the U.S. from Europe, said Andy Lipow, president of Lipow Oil Associates LLC in Houston. The premium shrank to 15 cents today.

Higher Imports

Shipments to the East Coast were 20 percent above the five- year average in the week ended Feb. 14, according to EIA data.

“People are expecting the imports to be coming over the next couple of weeks,” Lipow said.

Nationwide supplies of distillates slipped 339,000 barrels to 112.7 million last week, less than the 2.1 million-barrel decline projected by analysts in a survey by Bloomberg.

“The heating oil contract has been overvalued,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “That was a big disappointment on the inventories.”

Diesel’s crack spread versus April West Texas Intermediate, a rough measure of refining profitability, narrowed $1.32 to $25.43 a barrel. The premium over European benchmark Brent fell $1.42 to $17.78 a barrel.

March-delivery gasoline fell 1.33 cents, or 0.5 percent, to $2.8333 a gallon, after settling yesterday at the highest level since Sept. 6. Volume was 14 percent below the 100-day average. Prices rose 1 percent this week, the third consecutive increase.

The motor fuel’s crack spread versus WTI narrowed 21 cents to $23.93 a barrel. Its premium to London-traded Brent crude slipped 31 cents to $16.28.

The average U.S. pump price gained 0.6 cent to $3.389 a gallon, according to data from Heathrow, Florida-based AAA. Prices have risen 14 consecutive days to the highest level since Sept. 30, and are 38.9 cents below a year earlier.

--Editors: David Marino, Charlotte Porter