Houston — Traders are facing a dilemma in the various US heating oil markets of high outright prices and a lack of any buying outlets.
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Cadastre-se agoraNew York Harbor differentials dropped 75 points Monday as the usual off-season buyers stayed away because of high outright prices, hot weather, regional spec changes, and a lack of any reason to store it and wait. Gulf Coast differentials were unchanged thanks to export support, but traders said even cargo demand is not as strong as hoped.
S&P Global Platts assessed ultra low sulfur heating oil, which has a maximum 15 ppm sulfur, at NYMEX August ULSD futures minus 3.75 cents/gal for New York barges. Max 500 ppm low sulfur heating oil and traditional 2,000 ppm heating oil each also fell 75 points each, to minus 6 cents/gal and minus 13.50 cents/gal, respectively.
Market sources said there was little to no desire to buy in the East Coast or even Gulf Coast as outright prices hovered close to three-and-a-half-year highs. Platts assessed Gulf Coast heating oil unchanged at minus 18.25 cents/gal, but up 2.73 cents on a flat-price basis to $2.0132/gal. East Coast heating oil gained 1.98 cents to $2.0607/gal.
Each are July highs and continue a two-month trend of some of the highest prices dating back to February 2015 because of strength in the underlying futures market.
One East Coast trader wondered why prices were so high given the lack of any good outlets for buying, including the typical summer buying to ensure enough barrels for winter needs.
"We can't sell anything. Nobody's doing any lock-ins. The prices are so high nobody wants to do anything here," he said. "There's no demand for heating oil. There's no money in buying and storing it. So that's gone. We've had quite a heat wave up here, too."
Maryland and Pennsylvania continue to use LHSO as the New England states switched to an ULSHO specification on July 1. But a second trader said that demand has likely died out after a rush in buying before the deadline, which allowed use of 500 ppm LSHO still in tank.
"Many terminals loaded up with 500 ppm prior to June 30," he said. "It all got soaked up at the end of June."
Several Gulf Coast traders said their region is somewhat insulated by export demand, especially to parts of Latin America dealing with their winter.
"Exports are certainly down. I can vouch for that," said one active heating oil exporter of LSHO. He said that the biggest winter demand region -- Brazil -- is back after a crippling trucker strike that blocked import movements. But demand is not super strong and Brazilian oil giant Petrobras is fighting off imports with its internal supply.
"The strike's over but the margin is really bad down there," he said.
The export demand has supported a high sulfur heating oil differential that has seen long enough runs of weakness that it has replaced vacuum gasoil, or VGO, as a refinery feed. Gulf Coast heating oil had dipped below VGO from June 20 but only until July 5, which traders said was not enough to open up that outlet known as "distillate dropping."
Traders may have to wait a while before another source of demand opens up. A switch to cleaner fuels for the world's shipping channels in 2020 might prove a big draw for heating oil grades too high in sulfur for distillates but not for bunker fuel.
A second Gulf Coast trader said he already sees that in marine gasoil demand.
"Spec changes will be a big factor," he said. "So I'm not sure how it all will sort itself out, but it always does."
--Matthew Kohlman, matthew.kohlman@spglobal.com
--Edited by Richard Rubin, richard.rubin@spglobal.com