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Heating Oil Gains on Forecasts for Colder Weather, Supply Drop

Heating oil rose to a four-week high on forecasts for colder weather in the U.S. Northeast and a decline in distillate stockpiles from the lowest seasonal level in 12 years.

Futures gained as the National Weather Service’s Climate Prediction Center said temperatures may be below normal in the Northeast from Jan. 1 to Jan. 9. The Energy Department will probably report tomorrow that heating oil and diesel supplies declined 850,000 barrels last week to 116.1 million, according to the median estimate of 10 analysts in a Bloomberg survey.

“The weather is a little more seasonal and demand expectations are rising,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Heating oil for January delivery climbed 2.1 cents, or 0.7 percent, to $3.0723 a gallon on the New York Mercantile Exchange, extending this year’s increase to 4.7 percent. Volume was 37 percent below the average of the past 100 days.

January heating oil’s premium to the February contract increased 0.78 cent to 2.34 cents a gallon, the largest premium for the front-month contract since Oct. 29. The premium, or backwardation, signals inventories are tight. When supplies are ample, fuel for near-term delivery typically trades at a discount to later months, or contango.

“We never really had a big contango,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “We’re left going into the teeth of the winter with really low inventories, and that’s a recipe for higher prices.”

The Energy Department is scheduled to report last week’s inventories at 11 a.m. tomorrow, two days later than usual because of the Christmas holiday.

Distillate Inventories

Distillate inventories in the week ended Dec. 14 fell 1.09 million barrels to 117 million, the lowest level for that time of the year since 2000. The amount of product supplied to wholesalers jumped 20 percent from the previous week to 4.21 million barrels a day, the highest in a year.

“Forecasts of colder weather combined with distillate inventory levels that are about 15 percent lower than this time last year are supporting heating oil prices,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

The department will probably report that gasoline stockpiles rose 850,000 barrels, according to the survey. Inventories the prior week were at an eight-month high of 219.3 million. Refineries used 91.5 percent of capacity in the week ended Dec. 14, the highest level since August, as they restarted units after maintenance and raised output.

“High refinery utilization will continue and increase supplies of gasoline as we go through the winter,” Lipow said.

Gasoline for January delivery gained 0.55 cent to settle at $2.8213 a gallon, a 10-week high. Prices are up 5 percent this year. Volume was 37 percent below average.

The average nationwide cost for regular gasoline rose 1.4 cents to $3.261 a gallon, AAA said today on its website.

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