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Flotilla of distillate fuel heads to New York as winter nears

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A flotilla of ships is carrying distillate fuel to New York Harbor to shore up stocks ahead of the winter, according to traders and shipping data.

Shippers are sending vessels to the U.S. East Coast, which uses more heating fuel than another other parts of the United States but where inventories have fallen to alarmingly low levels in 2022.

The lack of stock has caused prices to surge, boosting the flow of product from Europe, which is already facing the prospect of a cold winter without Russian oil supply.

At least 11 vessels that can carry about 3.6 million barrels of distillate, which includes low-sulfur diesel and home heating oil, will arrive in New York Harbor in late November and early December, shipping data and sources say. That’s equivalent to about 4% of all the East Coast’s distillate fuel imports in 2021.

The shipments are coming mostly from Europe, which is set to ban imports of Russian crude in December and oil products in February in retaliation for Moscow’s invasion of Ukraine.

At least one of the vessels will be loaded from Turkey while at least five will be loaded from Rotterdam, according to shipping data and shipping analytics firm Vortexa. Another five are also en route, according to two traders.

In addition, Irving Oil’s 300,000 barrel-per-day refinery in Saint John, Canada, just wrapped up fall maintenance, and will soon be increasing exports to New England, traders said.

Companies have been overbuying fuels in preparation for the winter, traders said, helping drive up already elevated prices in the Eastern United States and Western Europe. Fuel prices rose sharply earlier this year after Europe and the United States put sanctions on Russian fuel, and due to a shortage of refining capacity in the United States and Western Europe.

East Coast distillate stocks are hovering near 21.8 million barrels, the second-lowest level in a decade.

Heating oil futures hit a near-record $4.55 per gallon in October before dropping as fixtures were booked.

Home heating oil hit a record $5.48 per gallon in the East Coast in October, while diesel prices are $5.47 per gallon as of Monday, nearing a high reached in June, according to the U.S. Energy Information Administration.

Line 2 of the Colonial Pipeline, which carries fuel products from the refinery-heavy Gulf Coast to the East Coast, is fully booked. Nominations were frozen for the last two cycles, meaning the line could not carry additional fuel from shippers.

The spread between Brent crude oil and ICE gasoil has widened dramatically this year, to $12.21 in January to $36.21 currently, a break from its normally tight spread, due to anticipated supply tightness from the pending ban on Russian diesel.