Heating Oil Tumbles as Economic Reports Indicate Lower Demand

Heating oil slid to a 17-month low as manufacturing weakened in Europe and China and more Americans than forecast filed for jobless claims, indicating that fuel demand may decline.

Futures sank 2.4 percent as a gauge of euro-region manufacturing fell to 44.8 from 45.1 in May, London-based Markit Economics said in an initial estimate. The preliminary reading of 48.1 for a June Chinese purchasing managers’ index from HSBC Holdings Plc and Markit indicated contraction. The Federal Reserve yesterday cut its growth estimates for the U.S. economy.

“The Federal Reserve failed to be more aggressive and there’s weakening manufacturing data,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “The market is well-supplied.”

Heating oil for July delivery fell 6.21 cents to $2.5253 a gallon on the New York Mercantile Exchange, the lowest settlement since Jan. 7, 2011. Prices have declined 24 percent from their year-to-date closing high of $3.3159 on Feb. 24. A drop of more than 20 percent is the common definition of a bear market.

The dollar surged 1.2 percent against the euro at 3:04 p.m. in New York, reducing the investment appeal of commodities.

“There’s a significant rally in the dollar, the S&P is down and there’s economic uncertainty with fears of a global recession,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Broad Decline

The heating oil decline was part of a broader drop. The Standard & Poor’s 500 stock index sank 2 percent. Crude oil for August delivery on the Nymex fell below $80 for the first time in eight months, sliding 4 percent to $78.20 a barrel. The S&P’s GSCI index of 24 materials retreated 2.6 percent.

“A lot of false hopes and expectations have been chopped off at the kneecaps,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “Every single piece of economic data the last several weeks has been negative and demand is getting worse. The trend is down.”

Jobless claims in the U.S. declined 2,000 to 387,000 last week, Labor Department figures showed, higher than the 383,000 forecast in a survey by Bloomberg.

The Federal Reserve Bank of Philadelphia’s general economic index fell to minus 16.6 in June, the lowest level since August, from minus 5.8 the previous month. The report covers eastern Pennsylvania, southern New Jersey and Delaware.

“You’ve got an overall negative situation with the global economy now and nobody really wants to be buying right now,” said Fred Rigolini, vice president of Paramount Options Inc. in New York. “There’s probably talk of stagflation now in the U.S.”

Federal Reserve

Fed Chairman Ben S. Bernanke, speaking at a Washington press conference yesterday, said policy makers are focusing “primarily” on the outlook for jobs in deciding whether to ease further, and more action would be needed without “sustained improvement in the labor market.”

July-delivery gasoline slipped 4.01 cents, or 1.5 percent, to $2.5501 a gallon, the lowest settlement since Dec. 19. Futures have sunk 5.6 percent this week and are down 25 percent from their year-to-date high of $3.4166 on March 26.

The premium for July over August gained 1.52 cents to 9.81 cents a gallon, the largest spread between the two contracts nearest to expiration since May 31.

Regular gasoline at the pump, averaged nationwide, fell 1.5 cents to $3.472 a gallon yesterday, according to AAA. It was the lowest price since Feb. 2.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.