March 16 (Bloomberg) -- Heating oil may be more expensive than gasoline in the U.S. this summer for only the second time in a decade as Japan’s earthquake and the war in Libya drive up demand for American exports of distillates.
The fuel’s premium over gasoline has increased sixfold to 15.4 cents a gallon from 2.53 cents since March 10, the day before the 9.0-magnitude temblor struck Japan. The spread has also widened as Libya’s political uprising reduced its crude exports to European refiners. Heating oil futures have averaged 7.7 cents less than gasoline from April through July in the past five years, according to data compiled by Bloomberg.
Japan, Asia’s second-biggest energy consumer, may look to import distillates after five refineries and 11 nuclear plants were shut by the quake, the country’s worst on record. At the same time, fighting in Libya, Africa’s third-largest oil producer, is forcing European marketers to turn to diesel produced in the U.S. by companies such as Valero Energy Corp.
“These events open up the possibility for heating oil futures to stay above gasoline this summer,” said Andrew Reed, a principal with Energy Security Analysis Inc. in Wakefield, Massachusetts, which provides market analysis and forecasting for oil companies and refiners globally. “This is an export opportunity for the U.S.”
Heating oil for April delivery rose 4.34 cents, or 1.5 percent, to settle at $2.9972 on the New York Mercantile Exchange. April-delivery gasoline gained 4.08 cents, or 1.5 percent, to $2.8437.
About 1.2 million barrels a day of refining was offline yesterday in Japan, according to data compiled by Bloomberg. The loss of more than a quarter of the country’s capacity will reduce distillate exports, analysts at Bank of America Merrill Lynch led by New York-based Francisco Blanch said in a report. Japan exported more than 200,000 barrels a day of distillate fuel in December, according to the Joint Organizations Data Initiative.
“There’s a ripple effect in terms of the impact,” Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London, said in an interview yesterday. “You could see the Asian gasoil market tightening, prices rising and less gasoil going to Europe. Prices would strengthen in Europe and the U.S.”
Libya’s crude exports, more than 85 percent of which go to Europe, may be halted for “many months,” the International Energy Agency said yesterday. The IEA estimated the output loss at about 1.3 million barrels a day of mostly light, low-sulfur crude, which produces more diesel. The lack of supply prompted Tamoil Italia SpA to shut its 95,000-barrel-a-day plant at Cremona, Italy’s 10th-largest.
Historically high pump prices may reduce demand for gasoline this summer, keeping futures at a discount to heating oil, which is traded as a substitute for diesel.
Regular gasoline at the pump averaged $3.556 a gallon March 14, The American Automobile Association said on its website, the most since Oct. 3, 2008. That compares with an average of $2.347 in 2009 and $2.779 in 2010.
“With the high gasoline price in the U.S., that could take a big bite out of discretional driving this summer,” Reed said. “So on top of distillate strength, you have potential gasoline weakness.”
The lowest price for ethanol relative to gasoline in eight months may also weigh on the motor fuel. Ethanol is mixed with gasoline in the U.S. to meet federal mandates and make supplies go further.
“Look how cheap ethanol is to gasoline and that will trigger some more discretionary blending,” said Tom Knight, vice president of trading and supply at Truman Arnold Cos. in Texarkana, Texas, which supplies about 80 million gallons of gasoline and diesel a month to customers that include retailers, trucking companies and municipalities.
Ethanol traded on the Chicago Board of Trade was 5 cents a gallon cheaper than gasoline today, encouraging refiners and blenders to use more of the biofuel. Production of conventional gasoline blended with ethanol has risen 7.3 percent to 4.87 million barrels a day this year, according to Energy Department data.
The premium for diesel fuel may disappear if higher interest rates curtail economic growth in Europe and reduce fuel consumption for transportation and industries.
European Central Bank President Jean-Claude Trichet surprised investors March 3 by saying that the central bank may tighten policy for the first time in almost three years to control inflation.
“The ECB said they may raise interest rates as early as April in Europe and that may slow demand,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “And there’s plenty of diesel. There’s no shortage.”
U.S. inventories of distillates, including diesel and heating oil, were 3 percent above a year earlier in the week ended March 11, according to Energy Department data.
San Antonio-based Valero is spending $2.9 billion to add hydrocrackers at refineries in St. Charles, Louisiana, and Port Arthur, Texas, to increase distillate output, Bill Day, a spokesman for Valero, said in an interview.
“We should be making all the diesel we can,” Bill Klesse, chief executive officer of Valero, said during a March 11 conference call. Valero has 14 North American plants.
Because of the opportunities for diesel exports, investors are hesitant to make the seasonal play of selling heating oil and buying gasoline in the spring ahead of driving season. July-delivery gasoline was at an 18.7-cent discount to July heating oil today, from 0.4 cent Jan. 7.
“Look at the back months, and the market was already anticipating that diesel was going to be stronger,” said Andrew Lebow, senior vice president for energy at MF Global Inc. in New York. “I’m not seeing a lot of interest on buying gas, selling heat. People are reluctant. If you’re wrong, you could be wrong in a big way.”
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