The US Energy Department's offer to loan 315,000 bl from the Northeast Home Heating Oil Reserve (NEHHOR) pressured New York diesel markets on Wednesday, easing some concerns over near-term supply availability ahead of the winter heating season.
The offer seeks to loan out nearly a third of NEHHOR supplies, which consist of 1mn bl of ultra-low sulfur heating oil held in leased commercial storage tanks in Portland, Maine; Boston, Massachusetts; and New Haven, Connecticut. The deliveries, scheduled to be completed by 13 November, are intended to bolster regional fuel supplies as inventories remain historically tight.
The announcement sparked a bearish reaction in the New York Harbor distillates market. Buckeye ultra-low sulphur diesel (ULSD) for prompt delivery traded at a 3¢/USG premium to November Nymex, pulling cash differentials down by 4¢/USG from Tuesday's levels to their lowest midpoint in four weeks. Market participants view the reserve loan as an additional source of supply for the northeast US, reducing some of the scarcity premium that had been supporting diesel values.
Falling futures prices added to the pressure on cash markets. The November Nymex ULSD contract fell by nearly 16¢/USG at around noon ET Wednesday, accelerating losses in physical markets. Buckeye cash ULSD values were on track to settle near $4.79/USG, the lowest level in two weeks. Even after the decline, prices remained more than double year-earlier levels of $2.22/USG.
Rising inventories also weighed on prices. ULSD and ultra-low sulphur heating oil (ULSH) stocks in the US central Atlantic coast region, which includes the New York Harbor market, rose by 1.3mn bl last week to 9.8mn bl, according to Energy Information Administration (EIA) data released Wednesday.
Still, inventories remain historically low, with regional stocks more than 19pc below the 12.1mn bl held during the same week last year. That suggests the market could remain vulnerable to supply disruptions, cold-weather demand spikes, or logistical constraints later this winter, despite the recent increase in available supplies.
