Heating oil rose on speculation that the Federal Reserve will act to stimulate the economy and the result will be stronger fuel demand.
Futures gained as Fed policy makers begin a two-day meeting today. The central bank’s so-called Operation Twist plan, which involves selling short-term debt and buying longer-term bonds, is set to end this month. Heating oil is traded as a proxy for diesel.
“The market seems to be pricing in at least an extension of Operation Twist,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “We expect some action from the Fed. The question is the degree.”
Heating oil for July delivery rose 1.74 cents, or 0.7 percent, to settle at $2.6351 a gallon on the New York Mercantile Exchange.
“We put high odds on them acting at the meeting,” said Vincent Reinhart, chief U.S. economist in New York at Morgan Stanley and a former head of the Fed board’s Division of Monetary Affairs, which develops policy strategy.
Gasoline for July delivery fell 1.94 cents, or 0.7 percent, to $2.6415 a gallon, the lowest settlement for the front-month contract since Dec. 22.
Gasoline was outperformed by heating oil as Brent crude weakened on the ICE Futures Exchange in London, reducing the cost of European fuel imports.
Brent’s premium to West Texas Intermediate crude, based on August contracts, narrowed $1.04 to $11.41 barrel.
“Brent has been consistently coming down,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.
The Energy Department will probably report tomorrow that stockpiles of the motor fuel rose 1 million barrels last week as refiners raised output, based on the median of 11 analysts in a survey by Bloomberg. Refinery rates rose 0.3 percentage point last week to the highest level in almost five years, according to the survey.
“We are seeing gasoline supplies return to the market as refinery operating rates are increasing around the country,” said Andy Lipow, president of Houston-based Lipow Oil Associates LLC.
Regular gasoline at the pump, averaged nationwide, fell 0.8 cent to $3.497 a gallon yesterday, according to AAA. It was the lowest price since Feb. 9.