ULSD futures rise to three-month high on incoming cold weather

The NYMEX ULSD futures contract rose 3.76 cents/gal to $2.3540/gal by the end of the Platts Market on Close assessment process on Jan. 2, in line with the broader crude complex amid a variety of factors.

The futures contract was last above current prices on Oct. 7 at $2.3962/gal as rising tensions in the Middle East drove the broader crude complex higher.

Market participants cited a variety of factors for the rise, including a new stimulus package in China, economic expectations from the incoming Trump administration, and the rebalancing of commodity indexes, while the incoming Arctic blast was commented on the most.

The new stimulus package in China and economic expectations in the US are related to the entire crude market complex, while the Arctic blast and commodity index rebalancing can be applied more specifically to the ULSD futures contract.

"China's stimulus is all the rage today," a paper trader said. "There's 400 billion in bond issuance and folks are more favorable about the country's demand picking up in 2025."

Brent crude's allocation is rising from 7.64% to 8.03% in the Bloomberg Commodity Index and 9.74% to 9.96% in the Goldman Sachs Commodity Index, with a greater weighting attached to the ULSD contract in the latter index, according to market sources.

Other market participants cited the incoming Arctic blast as the reason for the rise in the NYMEX ULSD futures contract.

"It's the cold weather forecasts," a distillates trader said.

The National Weather Service said Dec. 31 that above-normal warmth across the eastern half of the US will be quickly replaced by a series of arctic outbreaks, with the coldest air of the season set to take hold through next week.

Platts assessed ultra-low sulfur heating oil unchanged on the day at a 6.75 cents/gal discount to the NYMEX M1 ULSD futures contract, maintaining its seven-month high. The outright price was assessed 3.76 cents/gal stronger to $2.2865/gal, in line with the futures contract gain.

"It will be interesting to see if any production is harmed," a second distillates trader said.

The benchmark Gulf Coast ULSD differential rose 0.10 cent/gal Jan. 2 to a 7.15 cents/gal discount to the ULSD futures, while the outright price gained 3.86 cents/gal to $2.2825/gal, also the highest level since Oct. 7.

ULSD production increased 203,000 b/d to a three-week high of 5.087 million b/d in the week ended Dec. 20, while nationwide stocks slid 1.642 million barrels to 108.398 million barrels, a four-week low, according to US Energy Information Administration data released Dec. 27.

US jet production rose 60,000 b/d to 1.857 million b/d, but inventories fell by 625,000 barrels to 40.707 million barrels.

Platts is part of S&P Global Commodity Insights.