Bloomberg News

U.S. East Coast Diesel Reaches Record as Gas Limits Drain Supply

February 05, 2014

U.S. East Coast diesel soared to a record premium over futures as natural gas pipeline restrictions boosted demand for the heating fuel while stockpiles are at the lowest level since 2003.

Ultra low sulfur diesel fuel in New York Harbor rose for a fourth day, adding 2 cents to 42 cents a gallon above futures on the New York Mercantile Exchange at 3:37 p.m., data compiled by Bloomberg showed. It’s the strongest level in records begun in 2006.

The premium swelled after frigid weather prompted companies including Southern Natural Gas Co. to issue operational flow orders, or restrictions limiting gas shipments at some locations for customers. Cold temperatures typically lift demand for distillates, including heating oil and diesel fuel, as people turn up thermostats to heat homes and businesses. Diesel is traded as a proxy for heating oil.

When natural gas customers are interrupted, they “jump in the distillate pool,” said Eric Degesero, executive vice president of the Fuel Merchants Association of New Jersey. “That’s unanticipated demand that is stacked on top of the demand because of cold weather. That’s why we’re seeing the large premiums in New York.”

Distillate stockpiles in the PADD 1B region, which includes New York Harbor, tumbled 2.14 million barrels to 13.6 million last week, the lowest level since May 2, 2003, and the fourth consecutive drop, according to the U.S. Energy Information Administration.

Residential heating oil in the U.S. rose to a record $4.241 a gallon as of Feb. 3, the EIA said today. In New York state, prices averaged $4.482.

Refinery Outages

Refinery outages along the U.S. East Coast may also be contributing to a drawdown in stockpiles. Philadelphia Energy Solutions and Delta Air Lines Inc. (DAL:US) are carrying out turnarounds at refineries in Pennsylvania, while Phillips 66 (PSX:US) is operating at reduced rates due to an issue with a fluid catalytic cracker at its Bayway refinery in New Jersey, the largest plant in New York Harbor.

PBF Energy Inc.’s Paulsboro, New Jersey, refinery reported emissions yesterday. The plant had a steam loss in early January that resulted in the company breaking apart units to investigate, according to a person familiar with operations.

The four refineries have a combined capacity of 963,000 barrels a day, according to data compiled by Bloomberg.

The 3-2-1 crack spread in New York Harbor, a rough measure of refining margins for gasoline and diesel based on Brent oil in Europe, added $1.58 to $15.50 a barrel, the highest level since Aug. 23, according to data compiled by Bloomberg.

To contact the reporter on this story: Christine Harvey in New York at charvey32@bloomberg.net

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


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Companies Mentioned

  • DAL
    (Delta Air Lines Inc)
    • $47.38 USD
    • 0.61
    • 1.29%
  • PSX
    (Phillips 66)
    • $71.81 USD
    • 2.78
    • 3.87%
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