Release date: November 4, 2015 | Next release date: November 12, 2015
High inventories in Central Atlantic weighing on distillate spot prices
Distillate stocks in the Central Atlantic (Petroleum Administration for Defense District, PADD 1B), which encompasses the New York Harbor region, have risen nearly every week since April, reaching 36.9 million barrels as of October 30. This is 9.0 million barrels above the five-year average and 14.6 million barrels above the same time last year (Figure 1).
Over the past few years, the need for distillate inventories in PADD 1B has decreased because of the gradual decline in the demand for heating oil, the aggregation of high, low, and ultra-low sulfur specifications into just high and ultra-low distillate, and the ability to import distillate when necessary. This year, however, because of high gasoline crack spreads in domestic and international markets during the summer, gross inputs to U.S. refineries reached record highs and helped to bolster total U.S. distillate inventories. Growing distillate inventory levels in PADD 1B, particularly for this time of year, may also indicate a lack of demand for distillate regionally before the traditional heating season begins. Several regions in the United States, including the New York and Philadelphia regions, have experienced declining manufacturing activity, possibly effecting distillate demand.
Because of the rise in distillate inventories in PADD 1B, the ultra-low sulfur diesel (ULSD) spot price in New York Harbor moved lower compared with the ULSD front month futures contract price in recent months. The spot price for ULSD is the purchase or sales price for delivery within the next week, whereas the ULSD front month futures price represents the price for delivery in the next calendar month. In October, the average spread between the ULSD New York Harbor spot price and the ULSD front month futures price was -3 cents/gal (Figure 2), the largest discount since the futures contracts began using ULSD as the underlying commodity in April 2013. It is also the largest discount since August 2010, when the data represented higher-sulfur diesel prior to the switch to ULSD. For much of the time since April 2013, the spread was near zero, reflecting little difference in the spot and front month futures prices for ULSD. Two exceptions arose, however, during the 2014 and 2015 winter seasons. ULSD spot prices in New York Harbor rose sharply in response to the substantial distillate inventory drawdowns during the colder-than-normal winters. In the past few months, however, distillate supply significantly exceeded demand in the Northeast, which resulted in an increasing price discount for ULSD available for purchase on the spot market.
In addition to issues affecting the domestic market for distillate, factors affecting the global distillate market can also affect New York Harbor spot prices specifically because of PADD 1’s reliance on distillate imports to meet demand, particularly during the U.S. winter season. Over the past couple of years, two refineries in Saudi Arabia were constructed that maximize distillate output, and the expanded Ruwais refinery in the United Arab Emirates began to export distillate in 2015. This year, however, because of weaker global economic growth (which affects distillate consumption), along with increased refinery runs, the global market became well supplied with distillate. Reports indicate distillate inventories this year reached several-year highs in Europe and Asia, depressing global diesel prices.
With rising distillate inventories, both in the United States and internationally, refineries in the Northeast are seeing uncharacteristically low ULSD crack spreads for this time of year. The average New York Harbor ULSD spot-Brent spot price crack spread for October was 32 cents per gallon, the lowest for that month since 2009 and the lowest overall since June 2014.
U.S. average regular gasoline and diesel fuel price decreases
The U.S. average retail price of regular gasoline decreased less than a penny to $2.22 per gallon, down 77 cents per gallon from the same time last year. The Midwest price increased four cents to $2.27 per gallon. The Rocky Mountain price was down six cents to $2.24 per gallon. The West Coast and Gulf Coast prices each decreased three cents to $2.65 per gallon and $1.92 per gallon, respectively. The East Coast price decreased one cent to $2.11 per gallon.
The U.S. average diesel fuel price declined one cent to $2.49 per gallon, down $1.14 per gallon from the same time last year. The Midwest price decreased two cents to $2.52 per gallon. The East Coast, Gulf Coast, Rocky Mountain and West Coast prices all decreased one cent to $2.49 per gallon, $2.29 per gallon, $2.50 per gallon, and $2.70 per gallon, respectively.
Propane inventories gain
U.S. propane stocks increased by 0.8 million barrels last week to 102.4 million barrels as of October 30, 2015, 22.3 million barrels (27.8%) higher than a year ago. Gulf Coast inventories increased by 0.5 million barrels, and Midwest inventories increased by 0.2 million barrels. East Coast inventories and Rocky Mountain/West Coast inventories both remained unchanged. Propylene non-fuel-use inventories represented 3.6% of total propane inventories.
Residential heating oil and propane prices increase
As of November 2, 2015, residential heating oil prices averaged nearly $2.43 per gallon, less than 1 cent per gallon higher than last week and $1.01 lower than one year ago. The average wholesale heating oil price this week is $1.62 per gallon, 6 cents more than last week but $1.08 per gallon less than a year ago.
Residential propane prices averaged $1.92 per gallon, more than 1 cent per gallon higher than last week's price but almost 48 cents lower than one year ago. Wholesale propane prices averaged 54 cents per gallon, almost 2 cents per gallon higher than last week's price but 53 cents lower than last year’s price.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 11/02/15 | Week | Year | |
| Gasoline | 2.224 | -0.004 | -0.769 |
| Diesel | 2.485 | -0.013 | -1.138 |
| Heating Oil | 2.425 | 0.003 | -1.011 |
| Propane | 1.923 | 0.014 | -0.478 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 10/30/15 | Week | Year | |
| Crude oil | 46.59 | 1.99 | -33.95 |
| Gasoline | 1.405 | 0.101 | -0.765 |
| Heating oil | 1.499 | 0.045 | -1.016 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 10/30/15 | Week | Year | |
| Crude oil | 482.8 | 2.8 | 102.6 |
| Gasoline | 215.3 | -3.3 | 13.6 |
| Distillate | 140.8 | -1.3 | 21.1 |
| Propane | 102.411 | 0.848 | 22.284 |