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Heating Oil Reaches 31-Month High on Libya Conflict, Job Gains

Heating oil surged to the highest price since August 2008 on speculation that conflict in Libya and Middle East unrest will curtail fuel supplies and that a strengthening U.S. economy indicates greater diesel demand.

Futures rose a third straight day as Italy, following France’s lead, rejected a reported cease-fire proposal by Muammar Qaddafi and said it is recognizing Libya’s opposition as the legitimate government. A Labor Department report on April 1 showed U.S. payrolls swelled more than forecast and the jobless rate fell to a two-year low of 8.8 percent.

“There’s increased demand for diesel due to better economic news out of the U.S. and also China,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Heating oil for May delivery rose 3.69 cents, or 1.2 percent, to settle at $3.1714 a gallon on the New York Mercantile Exchange. That’s the highest settlement for the front-month contract since Aug. 29, 2008.

The conflict in Libya is the bloodiest of uprisings in the Middle East and North Africa that have ousted longtime rulers in Egypt and Tunisia and sparked protests in Bahrain, Yemen and Syria.

“There’s unease about the events in Libya and the region,” said Phil Flynn, vice president of research at PFGBest in Chicago.

In the U.S., the Department of Agriculture said on March 31 that farmers will expand corn sowing to 92.178 million acres this year, the second-largest area since 1944.

“There’s the perception of continued global demand on distillates and the expectation of strong demand out of the” agricultural sector, said Tom Knight, vice president of trading and supply at Truman Arnold Cos. in Texarkana, Texas.

Economic Recovery

Futures widened gains after Federal Reserve Bank of Atlanta President Dennis Lockhart said the recovery from the deepest recession since the 1930s is increasingly well established and will probably persist, while buffeted by government spending cuts and reductions in consumer debt.

“Heating oil is just stronger overall,” said Fred Rigolini, vice president of Paramount Options Inc. in New York and a trader at the Nymex. “You’ve got good manufacturing, a good jobs number, Libya refining is still offline and Brent is very strong.”

Manufacturing

U.S. manufacturing expanded in March at close to the fastest pace in almost seven years, according to a report April 1 by the Institute for Supply Management. The factory index was little changed at 61.2, after February’s 61.4 reading that was the highest since May 2004.

Brent crude for May settlement rose $2.36 to $121.06 a barrel on London’s ICE Futures Europe exchange. Product 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 May-delivery crude increased 53 cents to $108.47 a barrel.

Heating oil traded 0.26 cent higher than the front-month gasoline contract, the first time heating oil has been at a premium to gasoline since March 25.

“Heating oil will stay strong relative to gasoline through the second quarter based on the market disruptions in Japan and Libya,” said Andrew Reed, a diesel analyst and a principal with Energy Security Analysis Inc. in Wakefield, Massachusetts.

Heating oil also outperformed gasoline as Exxon Mobil Corp. and Sunoco Inc. restarted fluid catalytic crackers at plants in Baton Rouge, Louisiana, and Philadelphia after repairs.

“There were a little more reservations about gasoline with the news of the restarts,” said Tom Knight, vice president of trading and supply at Truman Arnold Cos. in Texarkana, Texas.

Gasoline for May delivery added 1.75 cents, or 0.6 percent, to settle at $3.1688 a gallon on the exchange. It was the highest settlement since July 21, 2008.

Regular gasoline at the pump, averaged nationwide, increased 1.7 cents to $3.662 a gallon yesterday, AAA said on its website. That’s the highest price since Sept. 27, 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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