Heating oil fluctuates on weather forecast, stalled budget talks

WITH COLDER WEATHER headed to the Northeast and stockpiles decline, heating oil prices fluctuate over concern on the so-called fiscal cliff.
Posted 12/27/12

DALLAS - Heating oil fluctuated as forecasts for colder weather in the U.S. Northeast and a decline in distillate stockpiles were tempered by concern U.S. lawmakers won’t reach a budget deal by the end of the year.

Futures swung between gains and losses as the National Weather Service predicted below-normal temperatures in the Northeast from Jan. 1 to Jan. 9 and analysts in a Bloomberg survey projected distillate supplies fell last week. Senate Majority Leader Harry Reid said the U.S. budget dispute probably won’t be resolved before Jan. 1, when automatic spending cuts and tax increases are scheduled to take effect.

“The weather is a little more seasonal and demand expectations are rising,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “But the market is very nervous and emotional about the fiscal cliff.”

Heating oil for January delivery climbed 0.48 cent to $3.0561 a gallon at 12:34 p.m. on the New York Mercantile Exchange, after swinging between $3.0469 and $3.0697. Volume was 33 percent below the average of the past 100 days. Prices are up 4.1 percent this year.

Reid, a Democrat, blamed the impasse on House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans. The two sides have failed so far to reach a consensus on how to avert more than $600 billion in automatic spending cuts and tax increases.

January premium

January heating oil’s premium to the February contract increased 0.62 cent to 2.18 cents. The front-month contract last traded at a discount to heating oil for later delivery on Dec. 12. The premium, or backwardation, signals supplies are tight. When supplies are ample to meet demand, fuel for prompt delivery typically trades at a discount to later months, or contango.

The Energy Department will probably report tomorrow that heating oil and diesel supplies declined 1 million barrels last week to 116 million, according to the median estimate of nine analysts in a Bloomberg survey.

“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 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.

Colder weather

“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 700,000 barrels in the week ended Dec. 21, according to the survey. inventories he 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 slipped 0.45 cent to $2.8113 a gallon. Prices are up 4.7 percent this year. Volume was 36 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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