April 20, 2018, by Stephanie Kelly
NEW YORK, April 20 (Reuters) – Prices for heating oil and diesel fuel traded on the U.S. East Coast are scaling multimonth highs, bolstered by unusually cold weather across the country and a surge in export demand, particularly from Brazil and Canada.
The jump in prices has given a lift to refiners during what is typically a lull in activity for them. Refineries typically reduce output and do maintenance between winter and summer peak demand periods.
This year, they have kept processing high to take advantage of profit margins at their highest levels for the time of year since 2015. The profit they can make for producing distillates HOc1-CLc1 – a group of fuels that includes diesel and heating oil, and one of the key measures for refinery margins – reached a three-year high for April of $21.73 on April 11.
Latin American buying has helped drive strong export flows and bolster refinery margins. Overall U.S. fuel exports of refined products reached a record 3.3 million barrels a day in 2017, according to the U.S. Energy Information Administration – triple that of U.S. crude exports.
Demand is expected to remain robust due to ongoing refinery outages in Latin America and maintenance work in Canada, market participants said.
So far in April, East Coast exports of middle distillates like jet fuel and diesel are more than 100,000 barrels per day, up from an average of 18,000 barrels a day in the first quarter, said Matt Smith, director of commodity research at ClipperData.
About half of those exports are headed to Brazil, Smith said, adding that demand for products such as heating oil and ultra-low-sulphur diesel (ULSD) has been high in that country.
“Brazil’s refineries have been running at unusually low rates,” said Robert Campbell, head of oil products research at Energy Aspects in New York.
“They have been struggling with unplanned outages, they’ve been struggling with deferred maintenance.”
Exported ULSD is also making its way to Canada, with shipments from companies such as BP Plc and Valero Energy Corp helping meet demand as refineries do maintenance work, traders said. Strong Canadian demand could keep the USLD market tight into next month, traders said.
In Quebec, Valero’s 265,000-barrel-per-day Jean Gaulin refinery shut its crude and gasoline-making units for maintenance on April 10, two market sources said.
Exports from the East Coast are at their highest since last July, Smith said. That has drained inventories at New York Harbor, which fell to just under 38 million barrels in the week to April 13, the lowest since May 2015, according to EIA data.
The tightening in supply has filtered through to pricing activity in East Coast markets. Benchmark heating oil futures , a proxy for other distillates, traded at $2.1094 a gallon on Thursday, the highest since the end of January. East Coast heating oil HO-DIFF-NYH traded at 2.75 cents per gallon below the futures contract on Wednesday, its highest since late September.
That is also the narrowest margin for April since 2013, a time when demand usually declines. But temperatures in the Lower 48 U.S. states have been about 16 percent lower than normal since the beginning of March, according to Thomson Reuters data. Ultra-low-sulfur diesel, used for transportation, was also near a two-month high, also unusual for this time of year.
(For a graphic on weekly distillate stockpiles across the United States, see: tmsnrt.rs/2HxnMBe)
Reporting by Stephanie Kelly, additional reporting by Devika Krishna Kumar