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Warm weather worsens glut of US gas, heating oil: Kemp

(John Kemp is a Reuters market analyst. The views expressed are his own)

LONDON – Unusually mild weather across the United States this autumn has sharply reduced heating demand and contributed to the substantial oversupply of both natural gas and heating oil.

Heating demand has been 27 percent lower than the long-term average so far this heating season according to the National Oceanic and Atmospheric Administration (NOAA).

Temperatures have been above normal every week since the beginning of September and heating demand has been correspondingly lower than usual.

The heating season runs from July 1 through until June 30 of the following year.

NOAA estimates heating demand by comparing the temperature in each area with a baseline of 65 degrees Fahrenheit, and then weighting the differences by the population.

Mild weather has coincided with strong growth in supply of both natural gas and heating oil this year and contributed to a big rise in the amount of both fuels in storage.

The amount of gas in working storage hit a record 3.978 trillion cubic feet last week, according to the U.S. Energy Information Administration (EIA).

Gas inventories were 7 percent higher than normal for the time of year and 10 percent higher than at the same point in 2014.

Stocks of distillate fuel oil have also risen strongly. Distillate is used for both transport (diesel) and space heating (heating oil).

Most of the demand for heating oil comes from states on the U.S. East Coast, also known as Petroleum Administration for Defense District 1 (PADD 1).

PADD 1 stocks have climbed to 61 million barrels, which is 4 million barrels higher than normal at this time of year and 21 million barrels higher than in 2014.

Diesel demand has also been hit by the weakness of freight across the country as well as lower demand from oil fields.

As a result, spot prices for both gas and distillate have been pushed lower. In trading last month, gas prices sank to their lowest level since 2012 and before that 2002.

Wholesale diesel prices, which normally trade at a substantial premium as winter approaches, are trading at just 14 cents per gallon above gasoline, compared with a long-term average of 28 cents at this time of year and 37 cents in 2014.

In related news, OPEC sees oil glut shrinking in 2016 as low prices curb rival output.

(Editing by William Hardy)

This article was from Reuters and was legally licensed through the NewsCred publisher network.