The US fuel oil hi-lo, the spread between US Atlantic Coast 1%S fuel oil and US Gulf Coast 3%S fuel oil, fell below $1/b Thursday for the first time since October on an expected lack of demand for power generation.
Platts assessed USAC 1%S fuel oil at $21.93/b, and USGC 3%S fuel oil at $21/b Thursday. The hi-lo of 93 cents/b was the narrowest the spread has been since it was 84 cents/b on October 1, Platts data show.
Buyers of LSFO in the winter typically purchase large amounts of 0.3%S fuel oil and 0.7%S fuel, which are both often priced at a differential to USAC 1%S fuel oil for Northeast utility companies who are required to keep a reserve of fuel oil on hand in case of a natural gas disruption.
This buying usually takes place in October and November in anticipation of colder temperatures boosting natural gas prices, and in turn making fuel oil a cheaper alternative. Depending on the severity of the winter and demand, utilities will occasionally buy additional LSFO supply after the initial pre-winter purchases.
A warmer-than-normal November and December has subdued home heating demand in the Northeast, according to sources, decreasing the need for gas, delaying any supply constraints for utilities.
In addition, with gas prices in the Northeast below $2/MMBtu, the economic incentive for utilities to burn fuel oil is lacking. Platts assessed USAC 0.3%S fuel oil at $31.68/b on Thursday, or an equivalent of $5.04/MMBtu.
From December 1 through December 13, about 5,635 barrels of oil were consumed by oil-fired generation units in New England, compared with about 10,380 barrels in the same time period in 2014, according to regional grid operator ISO New England.
With warm temperatures expected to last through January (See story, 1854 GMT), multiple sources said they did not expect additional purchasing of LSFO for power generation after the initial allotment of buying back in October.
