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New York Harbor ULSD Spot Prices Have Risen: Why?

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ULSD (ultra-low sulfur diesel) prices

The New York Harbor ULSD (ultra-low sulfur diesel) spot price was $1.505 per gallon on November 2, 2015. This represents a rise of ~1.1% from the price of $1.488 per gallon recorded on October 30, 2015. In the Central Atlantic (PADD 1B) region, New York Harbor ULSD spot prices fell in comparison with the ULSD front-month futures contract price, as seen in the graph below.

In October, the normal spread between the ULSD New York Harbor spot price and the ULSD front-month futures price was -$.03 for each gallon, which is a huge discount, since the futures contracts started using ULSD as the basic commodity in April 2013.

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Last winter, ULSD spot prices in New York Harbor climbed significantly in light of the considerable distillate stock drawdowns during the colder weather. From April to October this year, distillate supply has fundamentally surpassed demand in the Northeast, which has brought about falling costs for ULSD accessible for purchase in the spot market.

What is the impact of low prices?

Lower prices for USLD would be bearish for revenues of refiners such as Western Refining (WNR), Chevron (CVX), Tesoro Corporation (TSO), Phillips 66 (PSX), and Valero Energy Corporation (VLO).

Some of the above-mentioned companies are components of the Vanguard Energy ETF (VDE) and the Energy Select SPDR ETF (XLE).

Low distillate prices also lead to production cuts and therefore low transport volumes, which are negative for transport operators such as Valero Energy Partners (VLP), Phillips 66 Partners (PSXP), and MPLX (MPLX).

For more updates on the energy sector, follow Market Realist’s Energy and Power section.

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