Hedge Fund Heating Oil Bets Surge on Deadly Cold: Energy Markets

Hedge Fund Heating Oil Bets Surge on Deadly Cold: Energy Markets

Hedge funds boosted bullish bets on
heating oil to an 11-week high as frigid weather swept across
central and eastern Europe, spurring demand for U.S. fuel while
shutdowns of unprofitable refineries threatened supplies.
Wagers that prices will rise advanced 21 percent in the
week ended Feb. 7 to the highest level since Nov. 22, the
Commodity Futures Trading Commission’s Feb. 10 Commitments of
Traders report showed.
Heating oil jumped to a nine-month high on Feb. 7 as
blizzards, high winds and freezing weather in Europe closed
airports and schools, disrupted shipping and killed hundreds.
U.S. exports of distillate fuels, including heating oil and
diesel, have increased 19 percent in the past year and climbed
to a record in December, according to preliminary Energy
Department data released Feb. 8.
“With the cold weather in Europe, you’ve seen a lot more
product exports from the U.S.,” Bill O’Grady, chief market
strategist at Confluence Investment Management in St. Louis,
said in a Feb. 10 telephone interview. “If I’m holding
inventory and prices are this high, and someone in Romania wants
to buy it, I’m going to sell it to them. Money managers are
trying to profit off that demand.”
Heating oil for March delivery advanced 4.6 percent in the
week covered by the report to settle at $3.1909 a gallon Feb. 7
on the New York Mercantile Exchange, the highest price since May
2. The fuel reached another nine-month high of $3.2085 on Feb. 9
and traded today at $3.1939 at 9:05 a.m. in New York.

Rising Exports

U.S. exports of heating oil and diesel totaled 996,000
barrels a day in the week ended Feb. 3, compared with 835,000
barrels a year earlier, according to the Energy Department.
Temperatures in Frankfurt fell to minus 7 degrees Celsius
(19 Fahrenheit) Feb. 6, according to CustomWeather Inc. Germany
is Europe’s largest heating oil market.
“There’s been some pretty impressive cold air through
France, Germany, Poland and the rest of eastern Europe,” Joel
Widenor, a meteorologist with Commodity Weather Group LLC in
Bethesda, Maryland, said by phone Feb. 10. Temperatures ranged
from 2 degrees Celsius to as much as 9 degrees Celsius below
normal in parts of Europe including France and Germany, he said.
Futures advanced on Feb. 7, when police in Poland reported
that more than 67 people had died since January 27. Warsaw
reached minus 18 degrees Celsius on Feb. 6 and minus 13 the
following day.

Weather-Related Deaths

Ukraine’s Emergency Ministry reported on Feb. 7 that cold-
related deaths since late January exceeded 200. Temperatures in
Kiev that day reached minus 17 and Romania closed 46 national
roads because of blizzard conditions. Four Black Sea ports shut
because of strong winds.
Petroplus Holdings AG closed three of its five European
refineries as it filed for insolvency on Jan. 25. The company
said Feb. 8 that it will shut the Ingolstadt plant in Germany
within two weeks. Its 220,000 barrel-a-day Coryton refinery in
the U.K. is operating at reduced rates.
“The cold weather in Europe has created the demand while
at the same time Petroplus has shut three refineries,” Andy
Lipow, president of Lipow Oil Associates LLC in Houston, said by
phone Feb. 10. “The bottom line is we’re exporting a lot.”
Money managers, including commodity pools and commodity-
trading advisers, boosted positions in heating oil for a third
week. Net-long positions in futures and options combined rose by
7,056 contracts to 40,798, the CFTC data showed.

Gasoline and Crude

In other markets, bets that gasoline will climb advanced
for a seventh week, increasing by 3,548 futures and options
combined, or 4.2 percent, to 87,268, the data showed. It was the
highest level in records going back to 2006.
Funds raised bullish oil wagers by 4,440, or 2.2 percent,
to 205,709 contracts.
Hedge funds and other large speculators increased net-long
bets on four natural gas contracts by 2,653, or 3.9 percent, to
70,173 in the week ended Feb. 7. It was the highest level since
the seven days ended July 26. The measure includes an index of
four contracts adjusted to futures equivalents: Nymex natural
gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate
Swaps and ICE Henry Hub Swaps. Henry Hub, in Erath, Louisiana,
is the delivery point for Nymex futures, a benchmark price for
the fuel.
In London, net-long managed-money bets on ICE gasoil
futures and options rose to 74,596 lots last week from 65,438
the week before, according to data from ICE Futures Europe.