Risk of US$32 oil price seen by BofA as US heating demand fades

[LONDON] The crude price may fall as low as US$32 a barrel in the US because support from soaring heating-oil demand will fade as winter ends, according to Bank of America Corp.

The price of ultra-low-sulfur diesel, which is traded as a proxy for heating oil, surged to US$2.30 a gallon on Friday, the highest premium in 14 months to West Texas Intermediate, the US crude benchmark, according to New York Mercantile Exchange data.

The fuel was buoyed by below-normal temperatures from Atlanta to New York and record snowfalls in New England, Bank of America said. Frozen rivers also hindered its production by preventing tankers from unloading crude into refineries, according to London-based consultant Energy Aspects.

WTI rose 3.2 per cent in February, the first monthly gain since June. Prices recovered from a near six-year low amid unseasonably cold weather even as US crude stockpiles and production advanced to three-decade highs. The US benchmark is still about 50 per cent below its value in June amid a global crude-supply surplus.

"A brutal winter in the US northeast has briefly boosted demand," Bank of America strategists including Francisco Blanch and Sabine Schels said in a research note Monday. "As onshore US storage approaches maximum capacity, weakness should return" in the second quarter.

The premium of diesel to WTI fell 3.6 per cent to US$31.96 a barrel on Nymex at 8:57 am New York time. It rose 12.6 per cent last week to US$33.14 a barrel. WTI for April delivery traded at US$49.11 a barrel Monday. There is a risk that the US benchmark could fall to US$32 a barrel, according to Bank of America.

Crude stockpiles in the US, the world's biggest oil consumer, increased by 8.43 million barrels to 434.1 million through Feb 20, the highest since 1982 in weekly data gathered by the Energy Information Administration. The nation's output rose to 9.29 million barrels a day, the highest in weekly data gathered since 1983 by the Energy Department's statistical arm.

BLOOMBERG