www.fueloilnews.com | FUEL OIL NEWS | DECEMBER 2015 13
when necessary. This year, however, high
gasoline crack spreads in domestic and
international markets during the summer
resulted in inputs to U.S. refineries reach-
ing record highs, which in turn boosted
distillate production, which would either
need to be consumed or stored. 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 heat-
ing season begins. Several regions in the
United States, including the New York
and Philadelphia regions, have experi-
enced declining manufacturing activity,
possibly affecting distillate demand.
Note: The heating oil front month
futures contract began using ultra-low
sulfur diesel for the May 2013 contract.
The spread shown prior to April 2013
is calculated using a higher sulfur heat-
ing oil spot price, while the spread from
April 2013 onwards is calculated using an
ultra-low sulfur diesel spot price to make
appropriate comparisons. Gray shading
denotes abnormally cold winters since
the specification change in the heating oil
futures contract
Because of the rise in distillate inven-
tories in PADD 1B, the ultra-low sulfur
diesel spot price in New York Harbor
moved lower compared with the ULSD
front month futures contract price in
recent months. ULSD is a specific type
of distillate that is used as home heating
oil and as a transportation fuel. The spot
price for ULSD is the purchase or sales
price for delivery within the next week,
while 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 negative three
cents per gallon, 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 excep-
tions arose, however, during the 2014
and 2015 winter seasons, when ULSD
spot prices in New York Harbor rose
sharply in response to the substantial
distillate inventory drawdowns during
the colder-than-normal winters. More
recently, distillate supply has significantly
exceeded demand in the Northeast, which
has resulted in falling prices for ULSD
available for purchase on the spot market.
