Bloomberg News

Heating Oil Gains as Supplies Fall Amid Cooler Weather Forecast

October 13, 2011

Oct. 13 (Bloomberg) -- Heating oil gained as inventories fell and on speculation that demand may increase after cooler weather was projected for the U.S. Northeast and Midwest.

Futures rose 1.3 percent as the Energy Department reported that supplies of diesel and heating oil sank to an eight-week low in the seven days ended Oct. 7. Temperatures will be below- average in the Midwest from Oct. 18 to Oct. 22 and in the Northeast from Oct. 23 to Oct. 27, said Matt Rogers, president of Commodity Weather Group LLC.

“The fundamentals are fairly bullish on the products,” said Ray Carbone, president of Paramount Options Inc. in New York and a trader at the New York Mercantile Exchange.

November-delivery heating oil increased 3.67 cents, or 1.3 percent, to settle at $2.9714 a gallon on the New York Mercantile Exchange. The gain culminated the first four-day rally since Aug. 31.

“The intensity of the cooling is not severe, but it is more than sufficient to boost year-on-year heating demand increases for the second half of October in the Midwest and East,” Rogers said today in a note to clients.

Inventories of diesel and heating oil fell 2.93 million barrels to 154 million in the week ended Oct. 7, according to the department. It was the biggest weekly decline since March.

“The gain is a little bit weather and they’ve priced in the inventory report,” said Phil Flynn, vice president of research at PFGBest in Chicago.

Distillate Demand

Demand for industrial, trucking and home-heating fuels slipped 32,000 barrels to 4.07 million barrels a day. On a four- week average, consumption was 5.6 percent higher than a year earlier.

Futures also gained as lower supplies of heating oil and diesel in Europe indicated more need for U.S. exports.

Gasoil inventories in independent storage in Amsterdam- Rotterdam-Antwerp, Europe’s oil-trading hub, fell 8.1 percent to 2.05 million metric tons in the week ended today, the lowest level since December 2008, according to PJK International BV, a consultant in the Netherlands.

Stockpiles of gasoline in the U.S. decreased 4.13 million barrels to 209.6 million, the largest decline since April. The drop in supply came as refiners cut operating rates to the lowest level since May and imports slid to the least since 2001.

“Gasoline had a fairly strong inventory draw,” said Sander Cohan, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. “It was because of contracting supply. Refiners are getting into turnaround season and pulling back.”

Refinery Rates

Refiners lowered operating rates 3.5 percentage points to 84.2 percent of capacity, the lowest level since the week ended May 13. Imports of the motor fuel slipped 87,000 barrels to 418,000 barrels a day.

Demand, based on deliveries to wholesalers, rose 51,000 barrels in the week ended Oct. 7 to 9.01 million barrels a day. On a four-week average, consumption was 0.7 percent below a year earlier. Total fuel demand sank 1.9 percent to 18.7 million barrels a day from the prior week.

“We still have ample stockpiles and weak demand,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Gasoline for November delivery rose 0.88 cent, or 0.3 percent, to settle at $2.7575 a gallon on the exchange.

Regular gasoline at the pump, averaged nationwide, rose 2.1 cents to $3.426 yesterday, according to AAA data.

--With assistance from Brian K. Sullivan in Boston. Aaron Kirchfeld and Nicholas Comfort in Frankfurt and Oliver Suess in Munich. Editors: David Marino, Bill Banker

To contact the reporter on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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