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USAC ULSD, ULSHO differentials tumble on backwardation, weather

https://www.chemnet.com   Mar 06,2015 Platts
US Atlantic Coast ULSD and ultra low sulfur heating oil differentials plummeted Wednesday as the market began to react to a steep backwardation caused by massive prompt cold-weather demand and impending warm weather.

Platts assessed ULSD in the USAC at NYMEX April ULSD futures plus 13.75 cents/gal, 18.25 cents lower than Tuesday.

"I think the backwardation just spooked everyone," one source said.

ULSHO, which has a maximum 15 ppm sulfur and meets the same specifications as ULSD, fell 14.75 cents to be assessed at NYMEX April ULSD futures contract plus 12.25 cents.

"No one wants to pay 27 cents over anything for very long," one source said.

The March USAC ULSD balance-month contract was heard trading as low as plus 8 cents/gal Wednesday morning, indicating heavy backwardation from the prompt market.

The prompt market had been driven up by cold weather, and the differential was already high on a backwardated NYMEX basis-month roll, so forecasts of more normal weather next week and incoming cargoes later in March pushed the differential into a rapid slide.

One trader said second-half March cargoes of heating oil are due to arrive soon, and the prospect of inventory on the way pulled prices down.

With a steep backwardation in the ULSHO market following the end of peak demand season, buyers will only take what they think they need, sources said.

"It is not a time to fall in love with a high-price inventory," a market source said.

Sources also said the basis is still too high from the expiration of the March contract, which pushed differentials for ULSHO up more than 20 cents.

Prices fell despite data released Wednesday by the US Energy Information Administration showing East Coast stocks of distillate fuel with less than 15 ppm sulfur, which meets the specifications for ULSHO and ULSD, fell 2.66 million barrels to 20.32 million barrels, an 11-month low.
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