Heating Oil Slips on Speculation Overvalued at 26-Month High

Heating oil for January delivery fell on speculation that it was overvalued after touching the highest level since October 2008 and as a stronger dollar reduced the investment appeal of commodities.

Futures slipped as the dollar reversed a loss against the euro to gain 0.2 percent as of 3:12 p.m. in New York. Heating oil touched $2.5161 a gallon earlier as colder weather was forecast for the U.S. Northeast and as President Barack Obama agreed to extend tax cuts in exchange for extending federal unemployment insurance.

“You have to have pullbacks; nothing has gone straight up,” said Ray Carbone, president of Paramount Options Inc. in New York and a trader at the New York Mercantile Exchange. “This doesn’t change the trajectory or trend of the market. We have rallied into the end of the year the past several years.”

Heating oil for January delivery lost 0.55 cent to settle at $2.4702 a gallon on the Nymex.

Even as heating oil has fallen two consecutive days, it has gained 6.6 percent this month and is up 10 percent since the beginning of the fourth quarter.

“It’s typical when you trade to new highs to take some profit,” said Tom Knight, vice president of trading and supply at Truman Arnold Cos. in Texarkana, Texas. “But as long as stocks stay strong and the dollar stays weak, the underlying sentiment continues to be for a move higher.”

The Standard & Poor’s 500 Index is up 4 percent this month as of 3:13 p.m. in New York, while the dollar has slipped 2.3 percent against the euro.

Tax Cuts

Futures rose earlier after Obama said yesterday that he’ll agree to a two-year extension on all Bush-era tax cuts and cutting the payroll tax by $120 billion for one year.

“It does seem like the market has received a bit of a boost on it, the idea that extending the tax cuts and unemployment benefits will push further liquidity into the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The National Weather Service’s Climate Prediction Center projected that temperatures from the Midwest to the Northeast will be lower than normal Dec. 12 through Dec. 20.

The premium of the heating oil contract nearest to expiration over gasoline increased 1.32 cents to 14.72 cents, the widest since Nov. 16.

“The leadership of the complex just moved over from gasoline to heating oil and that is primarily weather-driven on cold weather in Europe and cold weather in the U.S,” Knight said.

Distillate Supplies

Supplies of distillates, including heating oil and diesel, probably fell 900,000 barrels last week, according to the median estimate of 17 analysts in a survey by Bloomberg News. The Energy Department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.

The heating oil crack spread, based on January contracts, widened 46 cents to $15.06 a barrel.

Gasoline for January delivery fell 1.87 cents, or 0.8 percent, to settle at $2.323 a gallon. The January crack spread narrowed 9 cents to $8.88 a gallon.

Stockpiles of the fuel probably decreased 300,000 barrels last week, according to the survey.

“We have plenty of supplies and demand isn’t that great,” McGillian said.

Regular gasoline at the pump, averaged nationwide, rose 0.7 cent to $2.958 a gallon yesterday, AAA said on its website.

To contact the reporter on this story: Barbara 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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