Houston (Platts)--27Jan2014/614 pm EST/2314 GMT

The Atlantic Coast ULSD differential Monday rose to a record premium over the US Gulf Coast on tight supply and winter demand for ultra low sulfur heating oil.

The 47.52 cents/gal premium over US Gulf Coast increased 6.76 cents/gal from Friday's previous record premium.

Platts assessed the Atlantic Coast ULSD differential for barges up 7 cents/gal at NYMEX February ULSD futures plus 27 cents/gal while Buckeye Pipeline was plus 28 cents/gal, both records since being assessed against the NYMEX ULSD futures contract starting in April for the May contract.

Platts assessed Gulf Coast ULSD at NYMEX March ULSD futures minus 7.10 cents/gal, up 1.15 cents/gal.

"Nobody has any to offer," one trader said.

Different regions switch basis month at different times based on pipeline schedules.

US Atlantic Coast ULSD and ultra low sulfur heating oil production fell 5,000 b/d to 190,000 b/d for the week ended January 17, according to US Energy Information Administration data released Thursday, the lowest level since the week following Hurricane Sandy in 2012.

This is the lowest production has been since the week ended November 2, 2012, when it was 165,000 b/d.

US Atlantic Coast stocks fell 2.109 million barrels to 22.108 million barrels.

Refinery utilization on the US Atlantic Coast fell to 70.1% from 75.5% for the week ended January 17.

Abundant supply from the US Gulf Coast is not able to make its way to the Atlantic Coast as the Houston-to-Greensboro 1.16 million b/d Colonial Pipeline Line 2 and Greensboro, North Carolina-to-New Jersey 885,000 b/d million Line 3 are full and the Jones Act discourages barging the product.

The Jones Act requires that all goods transported by water between US ports be carried on US-flagged vessels constructed in the US and owned and crewed by US citizens.

Additionally, with it being winter, demand for ULSHO is high in New York Harbor, which increases the ULSD differential because ULSD and ULSHO are the same product aside from use.

That creates the wide spread between the two regions as production in the US Atlantic Coast declined.

"I'm stunned by it," a second trader said of the rising premium. "This is ridiculous."

One trader said two cargoes of ULSD are coming in the first week of February and another is coming in February 8 to help relieve the tight supply situation.

"It is really going to plummet when those arrive," the trader said of the differential.

The arbitrage from the US Gulf Coast to New York Harbor, considered open when the Gulf Coast is 4.50 cents/gal higher than the Atlantic Coast, has been open for 81 straight trading days.

--David Henry, david.henry@Platts.com
--Edited by Richard Rubin, richard.rubin@platts.com

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