Bloomberg News

Gasoline Futures Drop on Concern Europe Debt Crisis May Worsen

November 09, 2011

Nov. 9 (Bloomberg) -- Gasoline and heating oil futures slid as equities and the euro tumbled on concern that the European debt crisis is worsening, threatening the global recovery and fuel demand.

Prices fell as the Standard & Poor’s 500 Index sank 3.3 percent and the euro declined 2.1 percent at 2:21 p.m. in New York after a report that German Chancellor Angela Merkel’s party wants to make it possible for countries to exit the euro area. Markets also weakened as concern about Italy’s solvency sent Italian bond yields to euro-era records.

“The financial markets are calling attention to risk,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “This is a slow-motion train wreck. We have more questions than answers regarding how things are going to play out in Europe.”

Gasoline for December delivery fell 6.22 cents, or 2.3 percent, to settle at $2.6442 a gallon on the New York Mercantile Exchange.

Merkel’s Christian Democratic Union wants to make it possible for European Union members to exit the euro area, Handelsblatt reported in a preview of an article to be published tomorrow, citing unnamed participants in the discussion.

Italian Bonds

Italian bonds slumped, driving two-, five-, 10- and 30-year yields to euro-era records, after LCH Clearnet increased the deposit it demands for trading the nation’s securities.

Five-year yields climbed above 7.5 percent as Prime Minister Silvio Berlusconi’s offer to resign left his weakened government struggling to implement austerity measures to reduce borrowing costs.

“Some of the glow from the announcement of Berlusconi’s resignation is wearing off,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We need to see more good economic news here and in Europe because the momentum has stalled.”

The Energy Department reported today that inventories of gasoline decreased 2.11 million barrels to 204.2 million in the week ended Nov. 4, the fifth decline in six weeks and lowest level since June 2009. Analysts forecast a 1 million-barrel increase.

Gasoline Demand

Gasoline demand, or deliveries to wholesalers, rose 1.8 percent to 8.67 million barrels a day. On a four-week average, gasoline consumption was 5.6 percent below a year earlier.

“Gasoline demand is so weak right now,” said Sander Cohan, an analyst with Energy Security Analysis Inc in Wakefield, Massachusetts.

December-delivery heating oil fell 1.75 cents, or 0.6 percent, to settle at $3.0986 a gallon on the exchange.

Prices touched $3.1509 after the 10:30 a.m. inventory report, which showed that distillate supplies fell last week by the most since January 2004 on a percentage basis, leaving inventories at the lowest level in almost three years.

Stockpiles of heating oil and diesel declined 6.02 million barrels in the seven days ended Nov. 4 to 135.9 million, the least since December 2008. The decrease occurred as refiners reduced rates to the lowest since May and wholesale demand for industrial, shipping and heating fuel sank 0.3 percent.

December heating oil’s premium over gasoline was 45.44 cents, the largest gap since January 2009.

“The market was surprised by the size of the distillate draw,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “The spread is telling you there’s relative tightness of supplies going into the winter season.”

Distillate Demand

Demand for industrial, trucking and home-heating fuels fell 12,000 barrels to an average 4.36 million barrels a day. On a four-week average, consumption was 3.9 percent higher than a year earlier.

“It’s an eye-popping draw in distillates,” said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC in Houston. “You would like inventory draws to show up as better demand instead of refiners managing inventories.”

Refinery rates fell 2.7 percentage points to 82.6 percent, the lowest rate since the week ended May 6. Distillate production dropped 7.3 percent while output of gasoline declined 2.9 percent.

Regular gasoline at the pump, averaged nationwide, rose 1.6 cents to $3.43 a gallon yesterday, according to AAA data.

--With assistance from Allison Connolly in Frankfurt and Paul Dobson in London. Editors: David Marino, Margot Habiby

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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