Bloomberg News

Heating Oil Falls as Demand Declines, Brent Weakens Versus WTI

November 16, 2011

Nov. 16 (Bloomberg) -- Heating oil fell to a five-day low as Brent crude’s premium to West Texas Intermediate narrowed and U.S. demand declined last week.

Futures sank as Brent’s lower value reduced costs for East Coast refineries, which primarily use oil priced versus the European benchmark. The Energy Department reported that diesel and heating oil demand slipped to a four-week low. Heating oil’s premium to gasoline narrowed for a second day after reaching a three-year high.

“The Brent/WTI spread came off and people are getting out of that heat-to-gas spread,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

December-delivery heating oil declined 3.67 cents, or 1.2 percent, to settle at $3.1346 a gallon on the New York Mercantile Exchange. Prices have gained 12 percent since the end of September, after falling the previous two quarters.

Heating oil’s premium over gasoline narrowed to 50.73 cents from 58.56 cents yesterday. The spread reached 62.69 cents on Nov. 14, the widest since November 2008.

The gap between Brent and WTI tightened 27 percent to $9.28 a barrel, the smallest spread since March 8 and down from a record high of $27.88 on Oct. 14.

Demand for industrial, trucking and home-heating fuels fell 173,000 barrels to 4.19 million barrels a day in the week ended Nov. 11, according to department data. On a four-week average, consumption was 5.1 percent higher than a year earlier.

Distillate Supplies

Stockpiles of heating oil and diesel declined 2.14 million barrels in the seven days ended Nov. 11 to 133.7 million, the lowest level since December 2008.

Inventories of gasoline rose 992,000 barrels to 205.2 million barrels.

Gasoline demand, or deliveries to wholesalers, fell 0.5 percent to 8.63 million barrels a day. On a four-week average, gasoline consumption was 5.7 percent below a year earlier.

“The fundamentals are neutral at best,” said Sander Cohan, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts.

Gasoline for December delivery rose 4.16 cents, or 1.6 percent, to settle at $2.6273 a gallon on the exchange.

Industrial production in the U.S. climbed 0.7 percent in October, figures from the Federal Reserve showed today. This follows reports yesterday that U.S. retail sales increased last month and as manufacturing in the New York region unexpectedly expanded in November.

“Signs that the economy is improving a little are bullish for oil and gasoline,” Flynn said.

Regular gasoline at the pump, averaged nationwide, fell 0.9 cent to $3.402 a gallon yesterday, according to AAA data.

--With assistance from Mark Shenk in New York, Alex Kowalski in Washington and Jennifer Ryan in London. 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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