Heating Oil, Gasoline Futures Slip as Crude Oil Spreads Narrow

Heating oil and gasoline fell as Brent crude oil in London dropped, reducing the cost for refiners on the U.S. East Coast, and as the European benchmark Brent’s premium over West Texas Intermediate oil slipped.

Gasoline and heating oil moved in the same direction as Brent for the fourth straight day. Refineries supplying fuel to New York Harbor, the delivery point for heating oil and gasoline futures, use crude oil grades priced relative to the European benchmark. Gasoline and WTI have moved in opposite directions on nine of 13 trading days in February.

“WTI and Brent are moving in opposite ways,” said Harry Tchilinguirian, London-based head of commodity markets strategy at BNP Paribas SA. “You’re probably looking at some profit taking by those who shorted the WTI-Brent spread. There does not appear to be any material change to the circumstances that have led to the blowout in the spread to suggest a rapid narrowing.”

Heating oil for March delivery dropped 4.24 cents, or 1.5 percent, to settle at $2.7324 a gallon on the Nymex.

The WTI-Brent spread, based on April futures traded on Nymex and ICE Futures Europe, dropped $2.19 to $13.75 a barrel. Product futures had followed Brent to 28-month highs as the spread reached a record $15.94 on record-high inventories of oil at Cushing, Oklahoma, the Nymex contract’s delivery point.

Changing Positions

Traders altered positions on the spreads before the Feb. 22 expiration of the Nymex-traded WTI March contract, which gained $1.37, or 1.6 percent, to settle at $86.36. April-delivery Brent on London’s ICE Futures exchange dropped $1.19, or 1.1 percent, to $102.59 after rising earlier when Middle East protests spread to Libya, Bahrain and Yemen, threatening fuel shipments.

“Before Tuesday’s crude expiration on the Nymex, we could see a whole lot more of this in the next few days,” said Tom Knight, vice president of trading and supply at Truman Arnold Cos. in Texarkana, Texas. U.S. markets will be closed on Feb. 21 for the Presidents Day holiday.

Heating oil declined as normal temperatures were projected in the U.S. Northeast Feb. 22 through March 2, according to the National Weather Service’s Climate Prediction Center. The Northeast is the largest user of heating oil.

“We’re getting toward the end of the season and warmer weather is on the horizon,” said Fred Rigolini, vice president of Paramount Options Inc. in New York and a trader at the New York Mercantile Exchange.

Gasoline Declines

Gasoline also fell as two U.S. government reports, showing a rise in the cost of living and more first-time jobless claims, indicated less motor fuel demand.

“People are going to be cutting back on buying gas with the not-so-rosy economic picture,” said Dan Flynn, an energy analyst at PFGBest in Chicago in Chicago. “But this market is nervous and just waiting for more headlines out of the Middle East. We’re going to see some choppy trading.”

Gasoline for March delivery dropped 1.7 cents, or 0.7 percent, to settle at $2.5277 a gallon after earlier touching $2.5554, the highest intraday price for the front-month contract since Sept. 29, 2008.

The consumer-price index increased 0.4 percent for a second month, the Labor Department said in Washington. Applications for jobless benefits rose 25,000 to 410,000 in the week ended Feb. 12, Labor Department figures showed.

Regular gasoline at the pump, averaged nationwide, increased 1.2 cents to $3.145 a gallon yesterday, AAA said on its website.

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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