Heating Oil Rises to Nine-Week High on Stimulus Hopes, Mideast

Heating oil climbed to a nine-week high on concern that Middle East stress will affect oil supplies and on speculation that the Federal Reserve will add more stimulus to boost the economy.

Futures gained along with crude as tensions increased between Israel and Iran over the Islamic Republic’s nuclear program after attacks on tourists in Bulgaria. A jump in weekly U.S. jobless claims raised expectations the Fed may institute a third round of asset purchases, known as quantitative easing or QE3, that may help support fuel demand.

“Geopolitical risk is up a little bit, the Iran thing still lurks large in the background,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “I can’t believe people are still talking about QE3. Expanding the Fed’s balance sheet carries significant long-term risk.”

August-delivery heating oil increased 6.94 cents, or 2.4 percent, to $2.947 a gallon on the New York Mercantile Exchange, the highest settlement since May 11. It was the seventh consecutive gain, the longest stretch of increases since Aug. 31. Prices are up 0.4 percent this year.

Heating oil, which traded at a premium to gasoline for the first time since July 5, has risen all but four days since reaching a year-to-date low of $2.5253 on June 21, gaining 17 percent.

Israeli Prime Minister Benjamin Netanyahu said Lebanon’s Iranian-backed Hezbollah organization carried out the attack that killed at least five Israeli tourists in Bulgaria. Iranian Foreign Ministry spokesman Ramin Mehmanparast accused Israel of “delusive” accusations.

Geopolitical Concerns

“It certainly looked like the market was boosted by geopolitical concerns regarding Iran, with the bombing in Bulgaria added,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “It at least spurred some short covering, some fresh buying.”

In Syria, security forces loyal to President Bashar al-Assad pounded rebel hideouts in Damascus today in retaliation for the blast that killed three top anti-insurgency leaders.

Crude oil for August delivery rose $2.79, or 3.1 percent, to $92.66 a barrel on the Nymex, the highest settlement since May 16. Brent oil for September settlement advanced $2.64 to $107.80 a barrel on the London-based ICE Futures Europe exchange.

Labor Department figures showed applications for jobless benefits rose by 34,000, or 9.7 percent, to 386,000, the biggest percentage increase since the week ended Jan. 25, 2008. Fed Chairman Ben S. Bernanke, in two days of testimony before Congress this week, kept open the possibility of a third round of asset purchases.

Federal Reserve

The Fed has purchased $2.3 billion of mortgage and Treasury debt in two separate rounds of asset purchases intended to stimulate the economy. Bernanke did not give specific indications in his testimony of when and how the Fed would act to boost the economy.

“Bernanke made it clear they’re prepared to do something if things get bad,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Add to that the possibility allegedly that Iran may have been behind the bombing in Bulgaria, and the instability in Syria adds to tensions in the region.”

August-delivery gasoline gained 5.55 cents, or 1.9 percent, to $2.9389 a gallon on the exchange, the highest settlement since May 21.

Gulf Coast

Gasoline lagged behind heating oil and crude as inventories of the motor fuel on the Gulf Coast, the largest U.S. refining region, are climbing. Padd 3 gasoline stockpiles rose to a 10-week high as of July 13, according to Energy Department data released yesterday.

“The cash market in the Gulf Coast has really come off hard,” Lebow said.

Gulf Coast 87-octane gasoline was at a 20-cent discount to Nymex futures yesterday, the weakest level since May 22. The discount narrowed 0.75 cent to 19.25 cents at 2:42 p.m. today New York time, according to data compiled by Bloomberg.

Regular gasoline at the pump, averaged nationwide, increased 1.1 cents to $3.437 a gallon, according to AAA. Prices are the highest since June 21 after rising every day but two since July 1, gaining 11.1 cents. Gasoline reached a year-to-date high of $3.936 on April 4.

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