Heating Oil Falls as Gasoil Weakens and Inventories Increase

Heating oil futures dropped to a four-week low as gasoil weakened in Europe, indicating less demand for distillate exports from the U.S. at a time when inventories are rising.

Futures slid as the February gasoil contract lost $10 to $950.75 a metric ton at 2:30 p.m. New York time on the ICE Futures Europe exchange in London. U.S. distillate stockpiles rose 1.69 million barrels in the week ended Jan. 11 to 132.4 million, the highest level since March 30, according to the Energy Department’s Energy Information Administration.

“The fact that gasoil has come off is weighing on heating oil,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research consulting company in London. “If it comes off too much, there will be less U.S. exports to Europe.”

Heating oil for February delivery slipped 1.22 cents, or 0.4 percent, to $2.9991 a gallon on the New York Mercantile Exchange, the lowest settlement since Dec. 18. Volume was 1.6 percent below the 100-day average.

Supplies of ultra-low sulfur diesel jumped 3.04 million barrels to 102.9 million, the most since Feb. 17.

“Europe has been supporting us and the break in gasoil has taken some of the pressure off prices,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Demand for heating oil and diesel over the past four weeks was 5.2 percent below a year ago.

PADD 1 heating oil supplies fell a fifth straight week, dropping 1.75 million barrels to 15.4 million, the department reported. Inventories are 42 percent below a year earlier.

Gasoline gained as refineries reduced operating rates last week, boosting speculation that seasonal maintenance will reduce fuel inventories.

Refinery Utilization

In an indication of future supply tightness, refinery utilization fell 1.2 percentage points last week to 87.9 percent, the lowest level in eight weeks, according to EIA data. Crude and other feedstocks processed in U.S. plants sank 1.3 percent to 15.3 million barrels a day, the lowest level since Nov. 16.

“Between now and May, there will be an average 1.5 million barrels a day of production offline because of the really heavy maintenance season,” Sen said.

Gasoline for February delivery rose 1.48 cents, or 0.5 percent, to settle at $2.7214 a gallon. Volume was 11 percent above the 100-day average.

Supplies of the motor fuel increased 1.91 million barrels to 235 million in the week ended Jan. 11, the highest level since Feb. 18, 2011. Inventories have jumped 17 percent in eight weeks and are at the highest seasonal point since the department began reporting weekly data in 1990.

Gasoline Demand

Gasoline demand rose 3.9 percent to 8.32 million barrels a day. Consumption over the past four weeks is down 0.6 percent from the same period a year earlier.

“Demand is up but it’s not anything to get too excited about,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “Utilization should be going down because we’re headed into turnaround and that should be bullish for products.”

The average nationwide retail price for regular gasoline fell 0.3 cent to $3.294 a gallon, AAA said today on its website. That’s the fifth consecutive decline and lowest average since Jan. 2.

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