December heating oil futures on the New York Mercantile Exchange (NYMEX) settled 8.45 cts higher Nov 17 at $1.4114/gal, spurred by another draw in inventories reported by Department of Energy (DOE).

US distillate inventories declined 1-mil bbl to 115.6-mil bbl for the week ending Nov 12, the ninth consecutive draw, with a dip in imports and strong demand preventing stocks from building, according to data released by the DOE. (Click here for US crude inventories.)

Heating oil stocks in the key consuming Atlantic Coast region fell 1-mil bbl to 29.8-mil bbls, and now stand 6.3-mil bbl below the five-year average.

Production edged higher, but the jump in production was insufficient to offset the decline in imports and strong demand. Imports fell 8,000 b/d to 222,000 b/d, and are not likely to recover anytime soon with high prices globally preventing arbitrage opportunities.

Meanwhile, demand jumped 171,000 b/d to 4.209-mil b/d, and on a four-week moving average is 5.3% above year-ago levels. This has caused distillate forward cover to fall to a record low for November of 26.9 days, according to energy analyst Mark Flannery at Credit Suisse First Boston. "Heating oil forward cover at 38.1 days is below last November's 44.8 days and the five-year average of 41.7 days," Flannery said in a report.

The US may need to rely more this year than last on its stocks to meet heating oil demand, as exports from Europe are expected to be less available during cold snaps this winter because of relatively low distillate fuel stocks there, the US Energy Information Administration (EIA) said Nov 17.

The agency, the statistical arm of the DOE, said it would probably have a better idea of the actual status of inventories at the end of the month, as most refineries resume service after Fall maintenance. Typically, distillate fuel inventories grow by nearly 5-mil bbl during November, mostly because refineries make more product when they return from maintenance, EIA said.

But this year "maintenance continued into the early part of November, thus reducing production of distillate fuel that would have otherwise occurred," the agency explained. "This kept distillate fuel inventories declining into the first part of November, and they continued to decline last week, even as refinery utilization increased to 93.5%."

The level of distillate fuel inventories going into the peak-demand winter season will be a "critical factor" in determining how much pressure will be put on heating oil prices this winter, EIA said.

Energy consultant Jim Ritterbusch had the following comment: "The report is a little bullish because of the heating oil. But the fundamentals for the rest of the complex are bearish."