Bloomberg News

Heating Oil Gains on Speculation ECB May Act to Stem Debt Crisis

June 06, 2012

Heating oil rose the most in almost eight weeks after European Central Bank President Mario Draghi said officials stand ready to act as the growth outlook for the euro region worsens.

Heating oil, traded as a substitute for diesel, gained 1.5 percent after Draghi said the bank is “monitoring all developments,” as the economy faces “increased downside risks.” The central bank left its benchmark interest rate at 1 percent.

“There’s chatter that Europe will try to do something to address the crisis even though the ECB left rates unchanged,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

July-delivery heating oil rose 3.81 cents to settle at $2.6717 a gallon on the New York Mercantile Exchange, the largest gain since April 12.

Gasoline for July delivery advanced 0.56 cent to settle at $2.6903 a gallon.

Draghi was speaking to reporters today in Frankfurt as the ECB faced pressure to help contain a crisis that could result in Greece exiting the euro and that has threatened the region’s economy and fuel demand.

In the U.S., the Federal Reserve’s policy-making committee meets June 19-20 to discuss whether more stimulus for America’s economy is needed. Atlanta Fed President Dennis Lockhart said today that an extension of the central bank’s Operation Twist program to reduce borrowing costs is “on the table” following data that showed job growth in May was the weakest in a year.

Stimulus Talk

“It’s talk of more stimulus coming that is boosting the market today,” said Sander Cohan, a global transportation fuels analyst and principal with Energy Security Analysis Inc. in Wakefield, Massachusetts.

Prices also advanced as Brent crude rose after Iran vowed never to suspend uranium enrichment, raising concern about a supply disruption because of conflict over its nuclear program.

Brent crude for July settlement gained $1.80 to $100.64 a barrel on the London-based ICE Futures Europe exchange. Higher Brent prices can raise the cost of gasoline imported from Europe and oil from West Africa that’s refined in the U.S.

“Products still seem to take their cues from Brent,” McGillian said.

Iran accused the United Nations nuclear inspectorate of spying, casting doubt on whether a deal allowing wider atomic inspections is possible.

Iran, the No. 2 producer in the Organization of Petroleum Exporting Countries, says its nuclear program is peaceful. Russia will host the next round of nuclear talks between Iran and the so-called 5+1 countries -- the five permanent members of the United Nations Security Council and Germany -- in Moscow on June 18-19.

Heating Up

“It seems the situation with Iran is heating up again and there’s concern there would be further conflict that would cut off supplies,” said Phil Flynn, vice president of research at Price Futures Group in Chicago. “People just don’t want to be short in that situation.”

The Energy Department reported that gasoline inventories rose for the first time in 16 weeks and demand fell last week. Gasoline supplies rose 3.35 million barrels last week to 203.5 million, according to department data. Inventories previously shrank 14 percent in 15 weeks to the lowest level since November 2008.

Demand fell 3.2 percent to 8.65 million barrels a day, and over the past four weeks was 4 percent below a year earlier. Total product supplied slipped 0.5 percent last week to 18.2 million barrels a day, the lowest level in nine weeks.

Refinery Rates

Refinery utilization rates rose to the highest level since July 2010, up 2.1 percentage points to 91 percent. Gasoline production slipped 1.1 percent while distillate output increased 1.3 percent to the highest level since Jan. 6.

“Contrary to it being summer, what’s pushing fundamentals around is distillates,” Cohan said. “The story is distillate export demand, which is still over 1 million barrels.”

Distillate exports totaled 1.07 million barrels a day last week, 59 percent above year-earlier levels.

Inventories diesel and heating oil rose for the first time in nine weeks, gaining 2.25 million barrels to 120 million. Demand slid 12 percent to 3.38 million barrels a day, an 11-week low. Consumption over the past four weeks was 5 percent below a year earlier.

Regular gasoline at the pump, averaged nationwide, fell 0.5 cent to $3.565 a gallon yesterday, according to AAA. It was the lowest price since Feb. 19.

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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