Bloomberg News

Heating Oil Falls as Fed Sees “Significant” Economic Risks

November 02, 2011

Nov. 2 (Bloomberg) -- Heating oil fell to a two-week low as Federal Reserve policy makers said that the economy has improved while “significant downside risks” remain, and they didn’t take additional steps to ease monetary policy.

Futures gave up earlier gains as the Federal Open Market Committee released a statement today following a two-day meeting. Prices also retreated as the dollar strengthened and equities pared increases after the report.

“We’re seeing some reaction to the Fed statement right now, we’re seeing stocks come off and we’re starting to follow that as well,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.

December-delivery heating oil slipped 3.72 cents, or 1.2 percent, to settle at $3.007 a gallon on the New York Mercantile Exchange, after touching $3.0637. Heating oil has declined 3.2 percent in four days of losses.

The Fed left unchanged its pledge to keep the benchmark interest rate near zero through at least mid-2013 as long as unemployment remains high and the inflation outlook stays “subdued.” The central bank has kept the target federal funds rate in a range of zero to 0.25 percent since December 2008.

“The market did move lower after the Fed minutes, equities are losing some of their gains and the dollar is firming up,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The Standard & Poor’s 500 Index was up 1.5 percent at 3:40 p.m. in New York after an earlier gain of 2 percent. The dollar fell 0.2 percent against the euro after dropping as much as 0.9 percent before the report.

Distillate Inventories

The Energy Department reported that heating oil and diesel inventories dropped 3.58 million barrels last week to 141.9 million, the lowest level since the week ended June 10 and fifth consecutive decline.

Demand for industrial, trucking and home-heating fuels rose 2.9 percent to 4.37 million barrels a day, the most since Nov. 5, 2010. On a four-week average, consumption was 6.6 percent higher than a year earlier.

“Distillate is clearly the brightest spot in the report, inventory draws, good demand,” said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC in Houston.

Gasoline for December delivery gained 0.28 cent to settle at $2.6272 a gallon on the exchange, after touching a high of $2.6879.

“Gasoline fared better than heating oil ‘‘because it make have been a little oversold yesterday,’’ Rigolini said.

Inventories of the fuel rose 1.36 million barrels last week to 206.3 million, the first gain in five weeks.

Gasoline Demand

Gasoline demand, or deliveries to wholesalers, rose 0.2 percent to 8.52 million barrels a day, the first increase in three weeks. On a four-week average, gasoline consumption was 4 percent below a year earlier. Total fuel use was down 1.9 percent from the previous year.

‘‘The report is bearish for gasoline,’’ said Sander Cohan, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts.

Refiners rates jumped 0.5 percentage point to 85.3 percent, the second straight increase and the highest rate in four weeks. Distillate production increased 5.7 percent while output of gasoline rose 1.6 percent.

‘‘You’re going to see more production to meet distillate demand and, by default, you’ll create more gasoline when refiners raise rates to keep support under distillate,” Cohan said.

Regular gasoline at the pump, averaged nationwide, fell 0.5 cent to $3.432 a gallon yesterday, according to AAA data.

--With assistance from Joshua Zumbrun in Washington, Rebecca Christie in Brussels and Simon Kennedy in Paris. 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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