Barclays Says Buy U.S. Gasoline for August, Sell Heating Oil

Author: Spencer Ogden
Date posted06/Dec/2011
Author: Spencer Ogden

Barclays Bank Plc recommends that investors buy gasoline and sell heating-oil futures for August 2012 delivery as motor-fuel production is set to decline next year and a “benign” Northern Hemisphere winter.

A warmer-than-usual winter will allow global heating-oil inventories to build as processing plants boost diesel yields, Miswin Mahesh and Amrita Sen, London-based analysts for the bank, said in a report yesterday. Refiners on the U.S. East Coast, the country’s highest fuel-demand region, will close 1 million barrels a day of refining capacity by the middle of 2012, creating “significant tightness” in the gasoline market. Motor-fuel futures have dropped 13 percent since Aug. 30.

“Moving into next year, we warn against continuing with this bearish sentiment towards gasoline,” the analysts said.“The trade will yield a positive value, given that the current pessimism about the gasoline market should fade in the summer, coinciding with the seasonally low point for heating oil.”

Sunoco Inc. idled its 194,000 barrel-a-day Marcus Hook,Pennsylvania, plant ahead of schedule because of a collapse in profit margins, the company said on Dec. 1. That follows ConocoPhillips decision to shut its 190,000 barrel Tranier refinery in the same state on Sept. 30. U.S. processing plants boosted their diesel-fuel production to 33.1 percent of capacity through the week of Nov. 25, the highest of data going back to 1989, according to Energy Department data.

January heating oil’s premium to gasoline was at 38.84 cents a gallon today, based on the futures contracts traded on the New York Mercantile Exchange. The spread reached 62.69 cents on Nov. 14, the widest since Nov. 20, 2008. The average price difference over the past three years is 4.7 cents.

The premium of the August heating oil contract is at 25.07 cents a gallon today after reaching 34.89 cents on Nov. 17.

Gasoline futures for January settlement fell 1.62 cents, or 0.6 percent, to $2.5975 a gallon at 12:52 p.m. Singapore time on the Nymex. Heating oil for the same time fell 0.3 percent to $2.9850.

Gasoline’s premium to crude has fallen 20 percent this year on the Nymex. Demand during the summer driving season this year fell 4 percent compared to the same period in 2010, Barclays said.