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Diesel Pares Gains as Inventories Decline Less Than Forecast

February 5, 2014

Feb. 5 (Bloomberg) -- Diesel pared gains after distillate supplies fell less than expected and demand slid even as frigid temperatures retained a grip on the U.S. Northeast and Midwest.

Distillate stockpiles, including diesel and heating oil, slipped 2.36 million barrels last week to 113.8 million, the Energy Information Administration reported. A survey by Bloomberg estimated a 2.5-million-barrel decline. Demand slipped 13 percent from the prior week, EIA data show.

"Many of us were looking for a bigger draw and we missed the estimate," said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. "The market is a little tired."

Ultra low sulfur diesel for March delivery rose 1.91 cents, or 0.6 percent, to $3.002 a gallon at 12:30 p.m. on the New York Mercantile Exchange. Trading volume was 40 percent above the 100-day average.

Supplies in PADD 1B, which includes New York, the delivery point for futures contracts, slid 14 percent to 13.6 million barrels last week, the lowest level since May 2003. Nationwide, distillate stockpiles were 12 percent below a year earlier and the lowest seasonal level since 2005.

Distillate demand fell 584,000 barrels a day to 3.94 million, according to EIA data.

"People are thinking, ‘even when you had really cold weather, that’s the best you can do?’", said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC in Houston.

 

Early Gains

 

Diesel touched $3.0149 earlier as the frigid temperatures and winter storms that boosted heating fuel demand the past several weeks may continue.

The eastern U.S. has a 50 to 80 percent chance for below- normal temperatures through Feb. 14, according to the U.S. Climate Prediction Center in College Park, Maryland. A storm out of the Rockies is expected to reach the East Coast by Feb. 9, and it may be the worst of the week, AccuWeather said.

"Distillates are supported by the continued cold-weather forecasts in the Northeast, which will continue to tighten supplies," said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Diesel’s crack spread versus WTI, a rough measure of refining profitability, widened 33 cents to $28.42 a barrel. The premium over European benchmark Brent gained 4 cents to $19.54.

 

Gasoline Rises

 

Gasoline gained as supplies increased less than forecast. Inventories rose 505,000 barrels to 235 million, a three-year seasonal high. The survey estimated an increase of 1.15 million barrels. Gasoline imports jumped 52 percent to 587 million barrels, an eight-week high.

March-delivery gasoline rose 3.31 cents, or 1.3 percent, to $2.6362 a gallon on trading volume that was 0.8 percent below the 100-day average.

The motor fuel’s crack spread versus WTI widened $1.24 to $13.38 a barrel. Its premium to London-traded Brent crude climbed $1.94 to $4.49.

The average U.S. pump price fell 0.2 cent to $3.272 a gallon, according to data from Heathrow, Florida-based AAA. Prices have dropped 5.1 cents this year and are 26.1 cents below a year ago.

 

--With assistance from Brian K. Sullivan in Boston and Lynn Doan in San Francisco. Editors: David Marino, Charlotte Porter

 

To contact the reporter on this story: Barbara Powell in Houston at bpowell4@bloomberg.net

 

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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