US East Coast scrambles for distillates ahead of refiner maintenance

FILE PHOTO: Gasoline prices are displayed at an Exxon gas station behind American flag in Edgewater, New Jersey, U.S., June 14, 2022. REUTERS/Mike Segar/File Photo

U.S. East Coast fuel suppliers are scrambling for distillate supplies ahead of planned maintenance at two key refineries which are set to further tighten supplies and boost prices in the populous region that already has low inventories ahead of winter, traders and analysts said.

Prices of diesel and heating oil, known as distillates, have jumped along with benchmark U.S. diesel futures’ 7.6% increase since last month, attracting a small amount of imports from outside the region, including from the U.S. Gulf Coast and as far afield as Colombia and Nigeria.

“A lot of distillate fuel is going to need to make its way to the U.S. East Coast in short order, and it’s surprising it hasn’t come already,” said Kpler analyst Matt Smith.

Distillates are in tight supply worldwide as sanctions on Russian crude exports have disrupted long-established supply flows, in particular to European refiners to turn into the fuels.

The U.S. Northeast is the world’s top heating oil market and accounts for over 80% of the nation’s consumption of the fuel, so a cold winter would further tighten supplies and Americans could face a sticker shock with their heating bills this winter.

In the coming weeks, the U.S. East Coast will lose about 120,000 barrels per day (bpd) of distillate fuels normally produced by the Irving Oil’s refinery in St. John, Canada, and Delta Airline’s DAL.N Trainer, Pennsylvania, refinery, according to Reuters calculations from the lost refinery output.

Both will be offline beginning in mid-September for about six to eight weeks, according to company comments, traders, and refinery workers.

The 320,000-bpd Irving Oil refinery supplied about 70% of the U.S. East Coast’s imported distillates last year, equivalent to 13% of the region’s distillate demand, data from the U.S. Energy Information Administration showed.

Canada’s largest refinery had been the only exporter of diesel to the U.S. East Coast over the past three months, according to Kpler data.

Over the past few weeks, at least two diesel cargoes of about 170,000 barrels were shipped to Florida from the Ecopetrol refinery terminal in Cartagena, Colombia, according to shipping data. One ultra-low sulfur diesel cargo was a split delivery to three locations and another was imported into the Everglades terminal in Fort Lauderdale, the data showed.

A 50,000-barrel cargo of diesel exported from Chevron’s (CVX.N) Nigeria gas-to-liquids plant is also en route from the Escravos plant in Nigeria to New York Harbor this month, traders said and shipping data showed.

Besides Canadian imports, those are the first foreign diesel cargoes imported into the U.S. East Coast for four months.

The U.S. normally receives diesel cargoes from other countries such as India and Qatar during high demand autumn months to stockpile for winter, which is why it is so unusual for so few imports to be arriving days before major refiners are set to be turning off distillate producing units, Smith added.

The northeast will need to secure even more supplies from elsewhere, Kpler’s Smith said.


Low feedstock supply and refinery outages have hit distillate stocks across the U.S. East Coast distillate stocks stood at 28.9 million barrels as of Sept. 1, less than 8 million barrels above the record low hit last year, according to the EIA.

Northeast distillate inventories were 33% below their five-year seasonal average as of Aug. 25, while the West Coast and Gulf Coast were 28% and 6% below their historical levels, respectively. Midwest stocks were up 2%.

Reflecting that tightness, spot market spreads between distillate and crude oil in New York Harbor are likely to surpass their record highs set in 2022, which topped $120 per barrel according to energy economist Philip Verleger.

Shippers have also increased distillate volumes on the Colonial Pipeline, which moves fuel from the U.S. Gulf Coast refining hub to New York Harbor, traders said, but declined to say by how much.

U.S. Gulf Coast exporters have seen the economics for selling to Europe weaken, making the East Coast market look more attractive, according to Sparta Commodities analyst James Noel-Beswick.

Record Russian fuel supplies to Latin America are also eating into U.S. Gulf refinery export markets, traders and shipping data show, potentially freeing up more fuel within the U.S.

Source: Reuters