Large hedge funds that have made a killing as wholesalegasoline prices hit post-Gulf War highs are now ready for a third quarter shift as concern over low heating oil stocks take the limelight, the analysts said.

"Most of what drives prices for gasoline has alreadyhappened, and by the time you reach July 4, the fundamentals will ease off and inventories will lift," said Ken Miller, analyst for Purvin and Gertz in Houston, Texas.

"Now people are very scared about heating oil shortagesthis cold season," he said.

Speculative funds have been a key driving force behindcrude oil's dazzling 17 month rally from below $10 to above $30, fuelled most recently by the U.S. Summer supply shortage of a new super-green gasoline, analysts said.

While gasoline demand should now ease after theIndependence Day holiday peak, the speculators that thrive on big price moves will not exit oil altogether but instead transfer long positions to heating oil, itself threatened by a winter supply shortage.

Heating oil futures on the New York Mercantile Exchange(NYMEX) have in the past week been well supported, gaining more than six cents a gallon, while gasoline softened more than a penny. By Thursday morning, heating oil was trading at 82.3 cents, and gasoline at $1.0130.

"We're going to see a diminishing concern for gasoline anda growing concern for distillates," said James Steele, analyst for Refco Inc. in New York. "Its the distillates that appear to have the weakest inventory situation right now, no longer gasoline."

U.S. Gasoline stocks on June 23 were just over 205 millionbarrels, or 15 million barrels less than last year, while distillate inventories were at 104 million barrels, or an alarming 27 million barrels fewer than last year, according to data released by the American Petroleum Institute (API) Tuesday.

Even with healthier stock last year, a dip in temperatureswinter led to some of the highest prices for heating oil consumers had seen in years.

In the latest Commodity Futures Trading Commission (CFTC)report, released June 16, large gasoline speculators on the New York Mercantile Exchange (NYMEX) were already shown shifting out of long positions for gasoline, dropping net longs by 1,065, and moving slowly into longs for heating oil, adding 104.

-- (Reuters)