Heating Oil Gains on Speculation Japan’s Diesel Demand May Rise

Heating oil advanced on speculation that factories and utilities in Japan would buy diesel and fuel oil to replace the power output lost from nuclear plants after Japan’s strongest earthquake on record.

Futures rose as the 8.9-magnitude earthquake and subsequent tsunami that struck on March 11, killing thousands, has shut or disrupted supplies from refineries accounting for about 29 percent of the nation’s processing capacity, or 1.3 million barrels a day, Edinburgh-based Wood Mackenzie Consultants Ltd. said in a report. About 1.3 million households were without power this morning, according to a government report.

“Japan is desperately in need of diesel and fuel oil for power generation,” said Ray Carbone, president of Paramount Options Inc. in New York.

Heating oil for April delivery added 3.74 cents, or 1.2 percent, to $3.0708 a gallon at 9:57 a.m. on the New York Mercantile Exchange.

Japanese utilities typically rely more on nuclear power, natural gas and coal for electricity generation because they are cheaper. They make up for shortfalls by burning more oil in power stations. Japan imports most of its low-sulfur fuel oil from Indonesia and Malaysia, Wood Mackenzie said in the report on its website.

Diesel Demand

Demand may also rise for so-called middle-distillate fuels such as diesel, as factories use their generators to provide electricity, according to Akira Kamiyama, an energy derivatives trader at Mitsui & Co. in Tokyo.

Gasoline slipped, following crude lower, amid increased concern that demand from refiners may be reduced.

“There’s worries how much demand is going to get taken out of the market until Japan’s problems get sorted out,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Gasoline for April delivery lost 2.55 cents, or 0.9 percent, to $2.9622 a gallon. Prices touched $2.9298, the lowest intraday level since March 1.

Refinery utilization in Japan may fall to about 65 percent following the earthquake, from 88 percent beforehand, Wood Mackenzie said.

Japan is the world’s third-largest crude consumer, using 4.42 million barrels a day of oil in 2010, according to data from the International Energy Agency’s Feb. 10 monthly Oil Market Report. China used 9.39 million and the U.S. 19.25 million, the agency said.

Brent Crude

Brent crude for April settlement declined 12 cents to $113.72 a barrel on London’s ICE Futures Europe exchange. Products futures are vulnerable to changes in Brent because refineries supplying fuel to New York Harbor, the delivery point for heating oil and gasoline futures, process crude grades priced relative to the European benchmark.

Nymex April crude sank 65 cents to $100.51 a barrel.

Regular gasoline at the pump, averaged nationwide, advanced 0.1 cent to $3.558 a gallon yesterday, AAA said on its website, the highest level since Oct. 3, 2008.

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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