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ULSD Drops as Distillate Supplies Jump to Seven-Week High

Ultra-low-sulfur diesel declined after the Energy Information Administration reported that U.S. distillate inventories jumped to a seven-week high.

Futures slid as distillates, including heating oil and diesel, increased 1.81 million barrels last week to 117.6 million. The median of 12 analyst estimates compiled by Bloomberg showed an increase of 500,000 barrels. ULSD’s crack spread versus West Texas Intermediate crude narrowed $1.54 to $25.80 a barrel. The premium over Brent fell 48 cents to $18.08.

“I expect the market is looking at history,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania. “You get a drawdown in distillates in the first quarter then stocks start to build. We’re moving in a seasonal pattern and refinery capacity is greater than it’s been in recent years.”

Ultra-low-sulfur diesel for June delivery fell 1.3 cents, or 0.4 percent, to settle at $2.9147 a gallon on the New York Mercantile Exchange, the first decline in five days. Trading volume was 17 percent above the 100-day average at 2:51 p.m.

The biggest inventory increase was on the East Coast, which includes New York Harbor, the delivery point for Nymex futures. Inventories in PADD 1 rose 2.1 million barrels to 36.1 million, the highest level in 11 weeks.

ULSD prices “were the weakest part of the sector because they had the weakest numbers in the inventory report,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Refinery Inputs

Refinery inputs increased 462,000 barrels to 15.5 million barrels, the highest level this year. Refiners boosted production of distillates by 5.4 percent to 4.53 million barrels a day, the highest level since April 5.

Gasoline inventories fell 910,000 barrels to 215.1 million in the week ended May 3, the lowest level since Nov. 30 and greater than the 475,000-barrel drop estimated in the survey.

East Coast gasoline stocks are at the highest level for this time of year since 1999 after dropping 182,000 barrels last week to 61.5 million, the first decline in five weeks.

“We’re flush with gasoline,” Schork said.

Gasoline for June delivery rose 2.04 cents, or 0.7 percent, to $2.8538 a gallon on the Nymex.

The fuel’s crack spread versus WTI narrowed 14 cents to $23.24 a barrel, and the fuel’s premium over Brent widened 92 cents to $15.52.

More Imports

Imports to the East Coast rose 156,000 barrels to 720,000 barrels a day. Shipments may pick up further in coming weeks. Oil traders boosted the number of tankers they booked to ship European gasoline to the U.S. in the past week, according to a survey of shipbrokers.

Traders already hired or plan to hire 33 Medium Range tankers on the industry’s benchmark Rotterdam-to-New York trade route for loading in the next two weeks, according to a survey of four shipbrokers and one trader yesterday and today. That compares with 21 charters in the corresponding survey on April 30.

“We have a lot of cargoes coming from Europe to the U.S. in the coming days and that’s going to pressure gasoline prices,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “In the interim, you might get a little bit of direction based on the stats but it may not last for very long.”

Gasoline at the pump, averaged nationwide, rose 1.4 cents to $3.539 a gallon, AAA said today on its website. Prices are 22.4 cents below a year ago.

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