O i l O u t l oo k
back. Interestingly enough we just haven't
collapsed yet and we should still see crude
move lower, but we're finding some support because crude oil in the middle part
of the country is making it to market. That
has pushed up the WTI price and narrowed the discount it has been trading
at with Brent. WTI moved into a big discount with Brent because of an inability
to get a lot of this new crude oil we are
finding to market. But they are breaking
the logjam."
Milne noted that even though the
United States is producing record amounts
of crude the Cushing, Okla., supply hub
has dropped for the past two months and
it continues to decline to a 1.5 year low
showing that the supply is making it to
market, which helps keep the U.S. price
closer to world prices.
"Particularly in New England, there
has been some change in the laws as to
the sulfur content, and this is a period of
tremendous flux even though some states
are not yet at the point where ultralow
sulfur content is required," Levine said.
"What they are finding is that the pric-
ing is tending to be based on the price of
ultralow sulfur because of uncertainty as
to what grade of distillate fuel oil is going
to be available as the year wears on. Most
of these guys have been selling high sulfur—500 ppm or more—and now they
are in a different world and we have data
Heating Oil
Where heating oil is concerned, our
experts foresee a fair amount of price stability around the $3 mark. Both Milne
and Levine noted that inventories are low
relative to the five-year range. Although
distillate production is up much of that
product is being consumed in other countries, particularly Latin America. "Our
export numbers are really breathtaking
and were exporting about 1.2 million barrels per day which two to three years ago
would have been unheard of," said Milne.
"There are a lot of reasons for that, not the
least of which is that Europe is in the process of reducing its refinery capabilities."
This factor, along with increased domestic demand, acts as support for distillate
prices.
The transition away from high sulfur
heating fuels to ultralow sulfur heating
fuels is also seeing more of an impact. As
Milne noted, this year the futures contract
transitioned from a heating oil contract to
ultralow sulfur diesel contract with a May
delivery and with that transition there was
a slight bump up in value because ULSD
has a higher specification. Levine noted
that dealers and marketers will have to get
used to this new landscape as it's going to
be the norm moving forward.
www.fueloilnews.com | FUEL OIL NEWS | October 2013
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