Houston — Six states in the US Northeast are adopting ultra-low sulfur heating oilspecifications on July 1, completing a stair-stepping transition that begansix years ago and leaving few options for high- and low-sulfur heating oil inthe fuels' largest demand area of the country.
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Massachusetts, Rhode Island, Vermont, Connecticut, Maine, New Hampshire,and the District of Colombia are transitioning to ultra-low sulfur heatingoil, capping sulfur in heating oil at 15 ppm. For most of the states, the moverepresents the end of a transition that began in 2014 when sulfur limitsshifted from more than 2,000 ppm to 500 ppm, or low sulfur heating oil. Theexceptions are Maine and New Hampshire, which will be transitioning directlyfrom high-sulfur heating oil to ULSHO.
New York was the first state to lower sulfur limits, switching to ULSHOin 2012.
With all of New England transitioning, the only two states still allowinga higher sulfur heating oil in the primary demand region are Pennsylvania andMaryland, which will both continue to allow 500 ppm.
The widespread move to ULSHO and limitations on LSHO use will relegatehigh sulfur heating oil, defined as anything more than 500 ppm, to blendstockstatus in the region. High sulfur heating oil in the Gulf Coast is typicallybetween 1,000 ppm and 1,400 ppm, sources say. That fuel could be blended downwith ULSHO to make a LSHO barrel in Maryland and Pennsylvania, but the sixtransitioning states represented a large portion of US demand, with nearlyhalf of homes in some of those states using heating oil.
Sources have said that buying interest in LSHO has picked up with thedeadline approaching, since many states are allowing any LSHO already in tankbefore July 1 to be sold after the transition date.
"To ensure a smooth transition to 15 ppm sulfur content distillate oilthroughout the heating oil supply chain, MassDEP is exercising enforcementdiscretion until December 31, 2018, to allow oil suppliers to ship and deliverexisting inventories of non-compliant distillate oil and to allow stationarysources to receive non-compliant distillate oil for combustion," theMassachusetts Department of Environmental Protection said in a statement inMay.
LSHO DEMAND GROWS
The spread this week between LSHO and ULSHO barges has been 75points/gal; last week the spread narrowed to 25 points/gal. On Wednesday,LSHO barges in New York Harbor were valued at NYMEX July ULSD futures minus4.75 cents/gal, and ULSHO barges at minus 4 cents/gal. The last time LSHO andULSHO prices were closer was on January 31, when they reached parity.
The two heating oil grades were also at parity for much of December andJanuary, as the smaller LSHO market will rise to the point of ULSHO, at whichpoint either fuel oil could be used.
"There seems to be less (LSHO) on offer," one Atlantic Coast source said."Anyone that can is taking it to New England this week. If it is in theirtanks before July 1, they can continue to sell it, but you cannot put anythingin but 15 ppm after July 1."
The 75-point/gal spread between LSHO and ULSHO is similar to year-agolevels, but the values diverged after July, reaching nearly 3 cents/gal. Asource agreed the two values would likely diverge again after companies can nolonger buy LSHO for storage in newly ULSHO states.
"It should widen out next week when New England can no longer take it,"the source said.
One source there said LSHO availability has not been disrupted inPennsylvania, which is mostly served by the Laurel Pipeline, which runs weststarting near Philadelphia.
Despite its increasing use, LSHO stocks on the East Coast are about halfthe size of high sulfur heating oil. In data released Wednesday, the US EnergyInformation Administration showed that LSHO stocks on the East Coast fell204,000 barrels in the week ended June 22 to 1.36 million barrels, the lowestsince 2014.
In New England specifically, LSHO stocks fell 16,000 barrels week-on-weekto 910,000 barrels, within 5,000 barrels of the lowest stock levels since2014.
In comparison, stocks of heating oil with more than 500 ppm sulfur rose119,000 barrels in the same week to 2.95 million barrels, and total East Coaststocks stand at 8.37 million, the EIA data showed.
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