Bloomberg News

Heating Oil Futures Gain as Japan, China Economies Show Strength

October 24, 2011

Oct. 24 (Bloomberg) -- Heating oil rose to a six-day high as reports showing increased Japanese exports and stronger Chinese manufacturing indicated gains for Asia’s two largest economies and greater fuel demand.

Futures gained 1.2 percent as China’s manufacturing may expand in October for the first time in four months, after a preliminary index of purchasing managers showed a rebound in new orders and output. Japanese exports grew 2.4 percent in September from a year earlier, the Ministry of Finance said in Tokyo today.

“The market seems to be viewing numbers coming out of Japan and China as positive and wants to test last week’s highs,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

November-delivery heating oil gained 3.71 cents to settle at $3.0546 a gallon on the New York Mercantile Exchange.

Heating oil and crude oil also advanced on speculation that European leaders are making progress in trying to resolve the region’s debt crisis.

Futures rose as leaders outlined plans to shore up banks, ruling out tapping the European Central Bank’s balance sheet to boost its rescue fund. The leaders excluded a forced restructuring of Greek debt, choosing instead to get bondholders to accept losses to help restore the country’s finances.

“The market is interpreting that they are making progress,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “But the market is still going to wait and see what the actual proposal is.”

Europe Fund

Chancellor Angela Merkel will seek backing from German lawmakers to bolster the euro bailout fund on the same day she heads to a European summit, as banks joust with leaders over the size of losses they take on Greek bonds.

Leveraging the European Financial Stability Facility rescue fund to more than 1 trillion euros ($1.4 trillion) and how far to cut Greece’s debt load emerged as two main obstacles to crafting a deal to stop the debt crisis at the Oct. 26 European Union summit, the second in four days.

“Europe is the key driver,” said Amrita Sen, an oil analyst at Barclays Plc in London. “The U.S. micro data also has been looking better and the China data has been better.”

Stocks Rise

The Dow Jones Industrial Average gained 1.1 percent as Caterpillar, the world’s largest maker of construction and mining equipment, posted third-quarter net income that topped analysts’ estimates amid growing demand for shovels and drills used to dig up metals. The Standard & Poor’s 500 Index jumped 1.4 percent.

“The U.S. stock market finally broke out of a sideways trading range,” said Michael Smith, president of T&K Futures & Options in Port Saint Lucie, Florida. “When the Asian economies are getting good news, it kind of offset worries about more problems with Europe. There’s a new-found optimism that any problems that happened in Europe can be offset by progress in other places.”

Heating oil and gasoline premiums over West Texas Intermediate oil on Nymex narrowed. December WTI outperformed product futures, gaining 4.4 percent to $91.27 in New York as inventories in Cushing, Oklahoma, the delivery point for the contract, have declined 26 percent since April.

WTI’s discount to Brent crude on the ICE Futures Europe Exchange, based on December contracts, was $20.18 a barrel, the smallest since July 28, down from $22.16 on October 21.

Crack Spreads

“The cracks are getting annihilated because of the strength in crude,” said Ray Carbone, president of Paramount Options Inc. in New York and a trader at the New York Mercantile Exchange.

Product futures prices have been tracking Brent, as refiners on the U.S. East Coast process oil priced versus the European benchmark. December-settlement Brent rose $1.89 to $111.45 a barrel on the ICE Futures Europe exchange.

The December heating oil crack spread narrowed $2.26 to $37.01 a barrel on the New York exchange, while the December gasoline crack lost $3.36 to $20.88.

Gasoline for November delivery rose 0.42 cent to settle at $2.6888 a gallon on the exchange.

Regular gasoline at the pump, averaged nationwide, fell 0.5 cent to $3.451 a gallon yesterday, according to AAA data.

--With assistance from Toru Fujioka and Theresa Barraclough in Tokyo, Patrick Donahue in Berlin, Aaron Kirchfeld in Frankfurt and Tony Czuczka and James G. Neuger in Brussels. Editors: David Marino, Charlotte Porter

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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