Bloomberg News

Heating Oil Gains as Supplies Fall, Cooler Weather Forecast

October 20, 2011

Oct. 20 (Bloomberg) -- Heating oil rose, outperforming crude oil and gasoline, as distillate supplies slid to a 13-week low and cooler weather was forecast, indicating greater demand for heating fuel.

Temperatures from the Midwest to the Northeast will be lower than normal from Oct. 25 to Nov. 2, according to the National Weather Service’s Climate Prediction Center. Supplies of heating oil and diesel decreased last week to the lowest level since July 15, the Energy Department reported yesterday.

“Heating oil is being driven by forecasts of colder weather in the Northeast and colder weather coming into Europe the next few weeks,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “And there was a significant draw in distillate stocks last week.”

November-delivery heating oil gained 4.89 cents, or 1.6 percent, to settle at $3.0301 a gallon on the New York Mercantile Exchange. It was the highest settlement this week.

Heating oil’s premium over gasoline rose to 35.46 cents from 30.97 cents yesterday, the largest gap since January 2009. Heating oil has gained 8.4 percent in October, compared with a 1.9 percent increase for gasoline and 7.7 percent advance in crude oil on the Nymex.

“We had a huge decline in distillate stocks and distillate demand is up against a year ago,” said Ray Carbone, president of Paramount Options Inc. in New York and a broker at the New York Mercantile Exchange.

Distillate Inventories

Distillate inventories dropped 4.27 million barrels last week to 149.7 million, the largest decline since Nov. 5, according to department data. Colder weather typically increases consumption of heating oil.

Demand for industrial, trucking and home-heating fuels rose 2.8 percent to 4.18 million barrels a day, the most since March.

Gasoline deliveries to wholesalers decreased 4.6 percent to the lowest level since February, according to department data.

“Without consumer demand, this is not a bull market,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The market is recognizing that physical demand is weak.”

Gasoline for November delivery gained 0.4 cent to settle at $2.6755 a gallon on the exchange. Prices touched $2.6115, the lowest intraday level since Oct. 7.

Crude oil for November delivery on the Nymex dropped 81 cents to $85.30. The November contract expired today. Brent oil for December settlement rose $1.37 to $109.76 a barrel on the London-based ICE Futures Europe exchange.

Regular gasoline at the pump, averaged nationwide, was unchanged at $3.474 a gallon yesterday, according to AAA data.

--With assistance from Brian Parkin in Berlin. Editors: David Marino, Richard Stubbe

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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