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N.Y. Residual Fuel Trades at Premium to Crude on Utility Use
By Robert Tuttle
Dec. 19, 2009 (Bloomberg) — Residual fuel traded at the biggest
premium to crude oil since 2003 as Northeast utilities may be
using the fuel instead of natural gas to generate electricity.
The price of New York City spot natural gas was more than
double the price of No. 6 fuel oil today when measured in energy
generated, according to data compiled by Bloomberg. Natural gas
prices have exceeded fuel oil prices for 16 days this month.
Oil has dragged down all the petroleum products, which
has made burning fuel oil economical for utilities, said Andy
Lipow, president of Houston-based Lipow Oil Associates LLC.
No. 6 fuel oil rose 50 cents to $37.63 a barrel at 11:27
a.m. in New York, according to data compiled by Bloomberg. The
fuel traded at a $3.76 premium to crude futures, the widest
since 2003. It traded at a premium to crude yesterday for the
first time in more than five years.
Fuel oil is supplanting 750 million to 1 billion cubic feet
a day of natural gas demand in the U.S. Northeast, Scott
Speaker, JPMorgan Chase & Co.s natural gas strategist, said in
a conference call yesterday.
We have pretty significant fuel switching on the Eastern
seaboard to residual fuel oil thats currently in the money,
he said.
Oil futures have fallen 77 percent since a July 11 record
of $147.27 a barrel on the New York Mercantile Exchange. Crude
for January delivery settled at $33.87 on the New York
Mercantile Exchange.
Residual fuel in the U.S. is used primarily in Florida and
the Northeast to heat buildings, power factories and generate
electricity. Higher-sulfur grades can be used as fuel to power
oceangoing ships.
U.S. fuel oil inventories last week fell to 35.9 million
barrels, the lowest since Sept. 19, Energy Department data show.
The decline came as production of the fuel by refiners dropped
6.8 percent to 534,000 barrels a day.
I cant see this as a feature that is going to persist
for too long, said David Kirsch, an energy markets analyst at
PFC Energy in Kansas City, Missouri. To the extent that any
refiners can pump out residual fuel, its going to be
remedied.
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