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Diesel Futures Gain on Speculation Storm Will Boost Demand

January 22, 2014

Jan. 22 (Bloomberg) -- Ultra low sulfur diesel futures rose on speculation that the season’s worst U.S. East Coast storm will boost demand and that distillate supplies fell last week.

New York, Washington and Philadelphia are blanketed under record snowfalls, bracing for temperatures near zero degrees Fahrenheit (minus 18 Celsius) and below tonight. U.S. distillate stockpiles, already 17 percent below the five-year average, are projected to fall another 500,000 barrels, according to the median estimate of 10 analysts in a survey by Bloomberg.

"Supplies have been tight, and now there’s the idea we have more heating demand," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Ultra low sulfur diesel for February delivery rose 1.14 cents, or 0.4 percent, to $3.0261 a gallon at 9:22 a.m. on the New York Mercantile Exchange. Trading volume was 77 percent above the 100-day average.

U.S. distillate stockpiles, including diesel and heating oil, fell 1.02 million barrels to 124 million in the week ended Jan. 10, Energy Information Administration data show. The EIA is scheduled to report last week’s inventories at 11 a.m. tomorrow.

Prices touched a high this morning of $3.0498, shy of yesterday’s intraday high of $3.0834.

"We need to show a decline in inventories tomorrow to keep this momentum," said McGillian.

 

Frigid Weather

 

The low in New York’s Central Park, where 11 inches (28 centimeters) of snow fell, a record for the date, is expected to reach 7 degrees Fahrenheit (minus 14 Celsius) tonight, according to the National Weather Service. Schools in Boston and Philadelphia closed for the day. New York City schools were open. Emergencies were declared in New York, New Jersey and Delaware.

"Inventories of heating oil are below the five-year average so the market is sensitive to the weather," said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Diesel’s crack spread versus West Texas Intermediate crude, a rough measure of refining profitability, narrowed 3 cents to $28.95 a barrel. The premium over European benchmark Brent gained 1 cent to $17.23.

Gasoline rose on lower volume trading than ULSD amid speculation that the storms and cold may have sent drivers to the pumps.

"Ahead of a storm, people top off their tanks before the cold weather and you get a little bit of a bounce in demand," Flynn said.

 

Gasoline Gains

 

Gasoline for February delivery advanced 2.18 cents, or 0.8 percent, to $264.24 a gallon on trading volume that was 5.2 percent above the 100-day average.

Gasoline stockpiles probably rose 1.75 million barrels last week, according to the survey. Supplies of the motor fuel increased 6.18 million barrels to an 11-month high of 233.1 million the prior week, according to EIA data.

The motor fuel’s crack spread versus WTI widened 18 cents to $15.81 a barrel while its premium to London-traded Brent crude gained 21 cents to $4.09.

The average U.S. pump price fell rose 0.4 cent to $3.283 a gallon, the first increase since Jan. 10, according to data from Heathrow, Florida-based AAA.

 

--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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