USAC ULSK jumps as fuel switching, power demand drain stocks

Ultra low sulfur kerosene differentials jumped 20.75 cents/gal Sept. 8 in the US Atlantic Coast as buyers cite a sudden stock drain due to demand from peaker units that generate power in extreme temperatures, but in this case to combat the heat and not the typical cold-weather needs.

Platts assessed USAC ULSK at NYMEX October ULSD futures plus 12 cents/gal, or $3.6601/gal based on ranges heard in the market. It traditionally trades as a premium to jet fuel, especially in the winter for its cold-weather properties. ULSK moved from 8.25-cent premium to 23-cent over benchmark Buckeye Pipeline jet fuel, which rose 3.75 cents to NYMEX minus 11 cents/gal, or $3.4301/gal.

“I had a few guys looking for the ULSK. I couldn’t get anyone to admit to having any to sell,” one USAC broker said, adding that people aren’t buying to store inventory unlike in years past. “I doubt they are stocking up, but I bet they are running on empty.”

A US jet fuel and kerosene trader also cited “local tightness on ULSK.”

Sources have said Valero and Phillips 66 are the main producers of the kerosene grades, but it is such a small market that the East Coast now usually imports the fuel if it is needed. Winter is typically the peak season for jet/kero, which is used in space heaters and blending into other distillates to prevent gelling in cold weather. ULSK is also a custom-blended fuel used by transit fleets in New York City and Philadelphia, as well as peaking power generation units in extreme heat or cold.

“There’s pretty much no ULSK [to] be found,” said a wholesale buyer in the Northeast. “There’s been a lot of demand for fuel switching from natural gas and some of the large generators can only do ULSK.”

He said supply will usually come from Canada, but the US Customs data showed no imports since late 2021.

Imports of high sulfur heating oil have occurred more often this year, although only three times and not since June. But as temperatures heat up into the fall season, traditional heating oil demand has all but disappeared and USAC differentials were heard repeatedly offered lower Sept. 8 with no buyer. Platts assessed USAC heating oil 11 cents lower to NYMEX minus 54.25 cents/gal, or $2.9976/gal. The wholesaler said they sell very little traditional heating oil since the state-by-state transition years ago to ultra low sulfur heating oil, leaving blending and exports as the only outlets, with exports rarely occurring in the East Coast like they do on the Gulf Coast.

“Minus 54 cents/gal doesn’t surprise me,” he said. “It’s very volatile and illiquid, and that drives the price.”

The spot broker echoed that the high sulfur heating oil market has simply disappeared in the East Coast: “I have no one that takes it anymore.”
Source: Platts