May 16 (Bloomberg) -- Natural gas rose as crude oil surged to a record and heating oil climbed amid speculation of higher international demand for distillate fuels.

Crude rose above $127 a barrel for the first time on expectations China will boost diesel imports after an earthquake. Supplies of distillate fuels fell 6.7 percent to 477.6 million barrels in March from a year earlier, the International Energy Agency said May 13. U.S. inventories were 2 percent lower than the five-year average, according Barclays Capital.

``It looks like heating oil is going to stay very strong as domestic balances tighten and as we export more product to Europe and South America,'' said Jim Ritterbusch, president of Galena, Illinois-based energy consulting firm Ritterbusch & Associates. ``Natural gas has been cheap on a Btu basis against heating oil for some time, so it will respond.''

Natural gas for June delivery rose 9.1 cents, or 0.8 percent, to $11.49 per million British thermal units at 9:57 a.m. on the New York Mercantile Exchange. Gas has increased 54 percent this year.

Based on cash market prices at New York, gas is valued at $12.20 per million Btu compared with $15.02 per million Btu for fuel oil, according to data compiled by Bloomberg. Heating oil at $26.57 per million Btu equivalent is more than double the price of gas.

Crude oil for June delivery rose $2.79, or 2.3 percent, to $126.91 a barrel in New York. Oil earlier touched a record $127.82, has climbed 33 percent so far this year and has more than doubled in the past 12 months.

Heating oil for June delivery rose 6.81 cents, or 1.9 percent, to $3.6905 a gallon in New York. The contract earlier reached $3.7115 and touched a record $3.7228 on May 14. The oil competes with gas in some markets and is up 40 percent this year.

To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.

Last Updated: May 16, 2008 09:59 EDT