The spread between US Gulf and Atlantic Coast heating oil narrowed Monday to its lowest level in well over a year as USAC demand for traditional heating oil -- with less that 2,000 ppm sulfur -- continues to decline.
On July 1, four additional states -- Massachusetts, Connecticut, New Jersey and Vermont -- will switch to heating oil with less than 500 ppm sulfur. These four and New York, which switched to less than 15 ppm sulfur in 2012, account for 2.053 billion barrels of the 2012 total of 3.473 billion barrels of US heating oil demand. Buying interest in the USAC market had been in decline ahead of the switch.
USAC heating oil fell 3.25 cents to NYMEX May ULSD futures minus 9.50 cents/gal, the lowest differential since September 11, 2013, when it was minus 10.25 cents/gal. This brought the spread to the Gulf Coast, which held steady at minus 10.30 cents/gal, to 80 points/gal, marking the lowest point for the spread since it was 70 points/gal on September 10, 2012.
The arbitrage is considered closed as long as the spread stays narrower than 4.50 cents/gal. It has been closed for nine of 14 trading days in April.
Platts assessed the NYMEX May ULSD futures contract 22 points lower Monday to $3.0113/gal at 3:15 pm EDT.
