US Cash Products-USG, NYH heat oil up as futures tank

NEW YORK, March 25 (Reuters) - Heating oil price differentials rose in the U.S. Gulf Coast and the New York Harbor on Tuesday as the benchmark futures contract fell sharply on the New York Mercantile Exchange, traders said.

"Heating oil is tanking as traders are unwinding spreads. There's not much time left for winter cold, the season is about to end," said Tom Knight of Truman Arnold on NYMEX heat oil.

Traders said the Gulf Coast prices were also higher on scheduling on the Colonial Pipeline, as northeastern traders were bidding the last of the winter fuel to cover any shorts.

A combination of lower suppliers and higher demand due to cold spring temperatures in the Northeast boosted heat oil values for a second day in the Harbor, the traders said.

"Due to backwardation (in NYMEX heating oil futures) there is no incentive to store oil so with the extra cold we are out (of barrels)," said a distillates trader based in New England.

Demand for heating oil is expected to be nearly 10 percent above normal this week with cool temperatures over most the northeastern states, the National Weather Service forecast.

Inventories of heating oil in the East Coast are down more than 27 percent from a year ago. Analysts expect data from the Energy Information Administration on Wednesday to show another weekly decline in U.S. distillates supplies. [ID:nN24335368]

In refinery news, Valero said it was running its fluid catalytic crackers at 73 percent of its capacity due to weak margins for gasoline production. [ID:nN24354092]

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