ULSD Slips to Four-Week Low as Government Reports Supplies Rose

Ultra-low-sulfur diesel slid to a four-week low after a government report that U.S. distillate inventories rose to a 13-week high and demand dropped.

Futures fell 0.9 percent as the Energy Information Administration reported that supplies of distillates, including diesel and heating oil, rose 1.85 million barrels to 120.7 million in the week ended May 24. Analysts surveyed by Bloomberg had predicted a decrease of 450,000. Demand declined 9.6 percent. Crude oil inventories rose to 397.6 million barrels, the highest level since 1931.

“It’s really being dragged down by crude having built another 3 million barrels,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “And distillate inventories have been building.”

ULSD for June delivery fell 2.64 cents to $2.8431 a gallon on the New York Mercantile Exchange, the lowest settlement since May 1. Trading volume was 2.7 percent below the 100-day average at 3:15 p.m. Prices have declined 1.1 percent this month and 6.6 percent this year.

July ULSD’s crack spread versus West Texas Intermediate crude oil narrowed $1.49 to $25.70 a barrel. July ULSD’s premium over Brent fell 69 cents to $17.21 a barrel.

U.S. gasoline supplies slid 1.51 million barrels last week, with the biggest decline an 841,000-barrel drop in the Northeast, or PADD 1, according to the EIA, the Energy Department’s statistical arm. Analysts surveyed by Bloomberg had predicted a decrease of 500,000. Demand, measured by deliveries to wholesalers, jumped to the highest level since August.

Bearish Expectations

“The expectations were a lot more bearish,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “PADD 1 inventories drew, gasoline demand was up, imports fell. All of these factors helped.”

Gasoline, which fluctuated between $2.7577 and $2.8244, settled up 0.3 percent after a person familiar with operations Exxon Mobil Corp.’s Torrance, California, refinery said it shut at least two process units following a power failure.

“The market just needed one headline to get going,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Gasoline for June delivery rose 0.94 cent to settle at $2.8125 a gallon. Trading volume was 17 percent above the 100-day average at 3:18 p.m. Prices have gained 0.4 percent this month and are little changed this year.

Crack Spreads

Gasoline’s crack spread versus U.S. benchmark crude West Texas Intermediate shrank 8 cents to $24.31 a barrel. July gasoline’s premium over July Brent rose 70 cents to $15.78 a barrel.

Futures slid before the EIA report to $2.7577, the lowest intraday level since May 2, after the industry-funded American Petroleum Institute reported gasoline supplies gained 1.94 million barrels last week.

“Gasoline is being supported by a rise in gasoline demand,” Lipow said. “Stocks remain nearly 10 percent higher than this time last year.”

Imports declined 34 percent to 712,000 barrels a day, the largest drop in 10 weeks.

Gasoline at the pump, averaged nationwide, fell 0.2 cent to $3.619 a gallon, Heathrow, Florida-based AAA, the nation’s largest motoring organization, said today on its website. Prices have declined for eight consecutive days and are 0.7 cent below a year earlier.

Before it's here, it's on the Bloomberg Terminal.