With distillate stocks on the U.S. Atlantic Coast (USAC) showing few if any signs of dropping, analysts and traders are likely eyeing total storage levels in the region when the data is released by the U.S. Energy Information Administration (EIA) this week.

Analysts surveyed by Platts Monday expect total distillate inventories to increase 100,000 barrels for the reporting week ended Friday. One ultra-low sulfur diesel (ULSD) trader said storage is no longer available at any of the delivery points allowed under the New York Mercantile Exchange (NYMEX) ULSD futures contract, given the contango* price structure in place.

EIA data suggests storage is still available elsewhere on the Atlantic Coast. The region's distillate stocks stood at 61.2 million barrels the week ended November 20, which was 62.6% of EIA's most recent estimate of working capacity at 97.762 million barrels.

Another source surveyed said some USAC storage facilities had even begun switching over from gasoline to diesel.

'I did hear talk of switching tanks in October,' the source said. 'I heard a few trading companies, so I think it's actually happening to some degree, but not massive.'

With the start of the holiday season, diesel use by commercial trucks likely picked up last week, although mild temperatures across the New York region helped keep curtail heating oil demand.

Cold weather typically boosts demand and eats into stocks. However, if the arbitrage between the U.S. Gulf Coast (USGC) and New York Harbor remains open, then supplies along the Colonial Pipeline can be expected to keep pumping barrels into the region, mitigating any increase in demand.

The cost of oil via New York Harbor barges averaged a 5.55-cent per gallon (cent/gal) premium to USGC pipeline ULSD last week, which was just enough to cover the 5-cent/gal transit fee Colonial Pipeline charged.

The Atlantic Coast is closely watched since the region is home to the New York Harbor-delivered NYMEX ULSD futures contract. For the week ended November 20, USAC combined stocks surpassed the five-year average for the same reporting period by 115%, totaling 51.8 million barrels.

An abundance of supply has translated into the ULSD futures timespread being in contango, an unusual situation for this time of year when demand should exert upward pressure on prices for prompt delivery.

Last week the prompt-month to 12th-month contango averaged 19.5 cents/gal. A year ago, the same spread was backwardated** nearly 3 cents/gal.

Storage opportunities typically emerge in the summer when traders can buy diesel off-season and store it until winter when demand picks up, RBN director of energy analytics Sandy Fielden said in a blog posting last week.

The prevailing contango has extended the same opportunity this year, though the key to a successful trade is access to storage capacity at one of the facilities approved by (Chicago Mercantile Exchange) CME Group for delivery of the heating oil futures contract, he said.

These facilities -- of which there are 16 in New Jersey and four in New York -- allow traders to avoid transport costs when closing out the trade that would eat into profits, Fielden said.

If USAC oil storage reaches a critical threshold, ample capacity exists to store on the USGC where distillate stocks stood at 38.7 million barrels the week ended November 20, or 53% of the region's working capacity of 73.646 million barrels.

CRUDE STOCKS SEEN FALLING

The conclusion of autumn maintenance has led to greater refinery activity, exerting downward pressure on crude stocks, while gasoline stocks have been rising in the face of increased supplies.

A fluid catalytic cracker (FCC) at ExxonMobil's 354,000 b/d Beaumont, Texas, refinery, exited planned maintenance last week after about a month, a spokesman said.

Analysts surveyed expect U.S. gasoline stocks to have increased 130,000 barrels last week. Atlantic Coast supplies equaled 58.3 million barrels the week ended November 20, which was only 0.7% above the five-year average for the same reporting period.

One factor putting downward pressure on the region's gasoline supplies last week was Irving Oil's 300,000 barrel per day (b/d) Saint John, New Brunswick, refinery.

The refinery was supposed to be at full rates by November 22, but multiple sources said they had not seen or heard of the plant fully restarting after completing a $200 million maintenance project. A full restart was delayed 'by a few days,' according to a source familiar with the facility.

Analysts surveyed expect total U.S. refinery run rates to have increased last week, up 0.9 percentage points to 92.9% of operable capacity.
U.S. crude oil stockpiles are expected to have fallen 1.2 million barrels last week for the first time since mid-September.

Inventories have already started falling on the Gulf Coast where crude stocks have decreased 3.566 million barrels the last two reporting periods. However, the decrease on the Gulf Coast is probably due to traders minimizing ad valorem stockpiles on the Gulf Coast before the end of the year, and leaving the oil instead at Cushing, Oklahoma, analysts at Citi Research said in a note last week.
Source: Platts