Heating Oil Slips on Speculation Higher Prices May Reduce Demand – Bloomberg

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April 12 (Bloomberg) — Stephen Schork, president of the Schork Group, talks about the outlook for oil prices. Schork speaks with Deirdre Bolton on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

Heating oil fell the most in three weeks on speculation that U.S. distillate inventories increased last week as higher prices slowed economic growth and reduced fuel demand.

Prices slipped 2.5 percent as supplies of distillates, including heating oil and diesel, probably expanded 500,000 barrels last week, according to the median estimate of 17 analysts in a survey by Bloomberg News. U.S. import prices increased in March at the fastest pace since June 2009, led by a gain in crude oil and the biggest jump in food costs since 1994, a Labor Department report today showed.

“There’s uncertainty about what these price levels mean for the economy and demand levels,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Without signs of an improving economy, you could see demand destruction at these elevated prices.”

Heating oil for May delivery dropped 7.99 cents to settle at $3.1726 a gallon on the New York Mercantile Exchange. Prices have tumbled 4.4 percent since closing at a 32-month high April 8.

Futures extended declines, following equities, after Japan raised the severity rating of its nuclear crisis to the highest, matching the 1986 Chernobyl disaster. The Standard & Poor’s 500 Index was down 0.7 percent at 2:49 p.m. in New York.

Radiation Leak

The stricken Fukushima Dai-Ichi nuclear plant, about 220 kilometers (135 miles) north of Tokyo, is leaking radiation in Japan’s worst civilian nuclear disaster after a magnitude-9 quake and tsunami on March 11.

“The Japan situation got worse and the equities are getting killed,” said Fred Rigolini, vice president of Paramount Options Inc., a broker on the New York Mercantile Exchange. “We’re in a correction mode right now. We’re seeing a lot of longs getting out.”

Heating oil’s decline was part of a broader slide in commodities. Among the 19 raw materials on the Thomson Reuters/Jefferies CRB Index of 19 raw materials, only cocoa and lean hogs were up as of 2:50 p.m. in New York.

Futures sank as Brent oil for May settlement lost $3.32 to $120.66 a barrel at 2:50 p.m. on the London-based ICE Futures Europe exchange while Nymex May-delivery crude dropped $3.67 to $106.25. Crude will experience a “substantial pullback” with Brent dropping to about $105 a barrel in the coming months, analysts at Goldman Sachs Group Inc. said. Goldman Sachs yesterday ended a recommendation to buy a basket of commodities including crude oil because the risks outweigh any further potential gain.

‘Big Sell-Off’

“You’re seeing big sell-off in commodities, the stock market is down, you had the Japanese upgrade and the Goldman reports,” said Tom Knight, vice president of trading and supply at Truman Arnold Cos. in Texarkana, Texas. “It was a confluence of headlines.”

Heating oil also came under pressure as Europe’s gasoil futures for May delivery declined 3.9 percent to $1,007.25 a metric ton on London’s ICE Futures Europe exchange at 2:52 p.m. in New York. Gasoil futures on ICE and heating oil on Nymex are traded as a substitute for diesel.

The supply of gasoil in independent storage in Europe’s Amsterdam-Rotterdam-Antwerp oil-trading hub has risen to the highest level since Dec. 19, PJK International BV said April 7.

The premium of heating oil over gasoline narrowed to 0.85 cent from 5.2 cents yesterday.

Global Growth

“Heating oil is more a barometer of global economic growth and its larger decline may be reflective of concern about global growth,” Knight said.

Gasoline for May delivery fell 3.64 cents, or 1.1 percent, to $3.1641 a gallon on the exchange.

Stockpiles probably dropped 1 million barrels last week, according to the survey. It would be the eighth consecutive decline and leave supplies at the lowest level since the week ended Dec. 24. The Energy Department is scheduled to report last week’s inventories at 10:30 a.m. tomorrow in Washington.

Regular gasoline at the pump increased 2.1 cents to $3.791 a gallon yesterday, AAA said on its website. That’s the highest price since Sept. 19, 2008.

Retail prices, which averaged $2.76 last year from April through September, will average $3.86 this year, the Energy Department said in its monthly Short-Term Energy Outlook, released today in Washington.

To contact the reporter on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net