Diesel Jumps to Two-Week High as Storms May Increase Demand

Diesel futures rose to the highest this month on speculation that below-normal inventories of distillates along the U.S. East Coast will decline further amid winter storms.

Futures climbed 1.6 percent. The National Weather Service said Boston may get 6 inches (15 centimeters), from a storm sweeping across the U.S. that’s expected to intensify off the coast tomorrow. New York may get 2 to 4 inches. Distillate supplies around New York Harbor, the delivery point for futures contracts, are the lowest since April 2003, Energy Information Administration data show.

“We’re tight on inventories and it’s hard to be too short with all the weather issues,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Ultra low sulfur diesel for March delivery rose 4.75 cents to $3.0782 a gallon on the New York Mercantile Exchange. Trading volume was 21 percent above the 100-day average as of 3:05 p.m. Prices climbed 0.9 percent this week.

Nationwide supplies of distillates, including diesel and heating oil, are seasonally the lowest since 2005, according to EIA data.

“Heating oil’s strength is definitely weather related and to the draw we had this week,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

Supplies are below normal at a time when refineries are beginning maintenance, reducing fuel production in coming weeks. Exxon Mobil Corp. (XOM)’s 503,500-barrel-a-day refinery in Baton Rouge, Louisiana, will shut a crude unit and a coker from next week until April 9, according to two people with knowledge of operations.

Refineries Shut

An average of 1.9 million barrels a day of U.S. capacity will be offline in February, according to Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. She previously estimated 1.6 million barrels would be idled.

“We’re seeing more evidence of turnarounds, and that just means you’re going to draw down product inventories quite quickly,” Sen said.

Another 1.3 million barrels in March and 800,000 barrels in April are scheduled to be shut for work, according to Sen.

March-delivery gasoline advanced 2.81 cents, or 1 percent, to $2.8053 a gallon, the highest settlement since Dec. 27, on volume that was 16 percent above the 100-day average. Prices increased 2.1 percent this week.

The average U.S. pump price gained 0.8 cent to $3.335 a gallon, according to data from Heathrow, Florida-based AAA. It was the seventh consecutive increase and highest average since Oct. 22. Prices are 29.3 cents below a year ago.

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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