Heating Oil Gains on Speculation Europe Diesel Imports to Rise

Heating oil jumped to a seven-week high on speculation that Europe will import more diesel from the U.S. after three regional refineries close this month and on the prospect of a European ban on Iranian oil.

Futures rose as Petroplus Holdings AG (PPHN), Europe’s largest independent refiner by capacity, will temporarily shut three of its five plants. Heating oil increased gains when Brent crude surged on reports that European governments will ban imports of Iranian oil.

“Refiner shutdowns could create a diesel shortage in Europe and should increase demand for imports,” said Phil Flynn, vice president of research at PFGBest in Chicago. “There’s also a concern that Iran will lash out at the ban and that this also reduces the supply of oil.”

February-delivery heating oil rose 5.17 cents, or 1.7 percent, to settle at $3.0899 a gallon on the New York Mercantile Exchange, the highest settlement since Nov. 16. Prices have gained 6.8 percent in four days.

Heating oil’s premium over gasoline widened 1.51 cents to 30.47 cents, the largest difference since Dec. 16. The heating oil crack spread increased to $26.56 a barrel, a five-week high, from $24.64 yesterday

The three Petroplus refineries that are shutting in France, Belgium and Switzerland have a combined capacity of 337,300 barrels a day.

The U.S. exported a record 1.07 million barrels a day of heating oil and diesel in October, the Energy Department reported Dec. 29. About 18 percent, or 196,000 barrels a day, went to the Netherlands, the top destination for U.S. distillate cargoes, department data show.

Prices widened gains after Brent crude for February settlement rose as much as 1.6 percent on the London-based ICE Futures Europe exchange.

EU Sanctions

European Union governments are working to sanction Iran’s oil exports and banks, with final decisions due on Jan. 30, EU spokesman Michael Mann said.

Prices also rose after the Institute for Supply Management’s U.S. factory index climbed to 53.9 last month from 52.7 in November, the Tempe, Arizona-based group’s data showed yesterday. Fifty is the dividing line between growth and contraction.

“Heating oil gained more than WTI and gasoline because it’s winter and there’s better manufacturing news out of Europe, China and the U.S.,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

German Manufacturing

Euro-area services and manufacturing output contracted less than initially estimated in December, led by Germany, the region’s largest economy, where output reached a four-month high. A composite index (ECPMICOU) based on a survey of purchasing managers in both industries rose to 48.3 from 47 in November, London- based Markit Economics said today.

“We’re in the middle of winter here and some of the manufacturing news yesterday is pretty bullish for heating oil as an industrial fuel,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.

Orders to American factories rose in November by the most in four months. Bookings for factory goods (TMNOCHNG) rose 1.8 percent after a revised 0.2 percent drop the prior month, data from the Commerce Department showed today.

U.S. heating oil and diesel inventories probably rose 1 million barrels last week, according to the median estimate of 13 analysts in a survey by Bloomberg News. Supplies (DOESDIST) were 13 percent below year-earlier levels in the week ended Dec. 23, according to Energy Department data.

The department is scheduled to report last week’s inventories tomorrow. Gasoline stockpiles probably increased 1 million barrels, according to the survey.

Gasoline Demand

U.S. gasoline demand at the pump sank 14 percent from the prior week to the lowest level in more than seven years of records, according to MasterCard Inc.

Drivers bought 8.16 million barrels a day of gasoline in the week ended Dec. 30, down from 9.46 million the week before, according to MasterCard’s SpendingPulse report. MasterCard’s data goes back to July 2004.

Gasoline for February delivery rose 3.66 cents, or 1.3 percent, to settle at $2.7852 a gallon on the exchange, the highest settlement since Oct. 14.

Regular gasoline (3AGSREG) at the pump, averaged nationwide, climbed 0.9 cent to $3.288 a gallon yesterday, according to AAA data. Prices were 7 percent above a year earlier.

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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