follow us like us subscribe contact us
Adbar

The US Northeast Heading Towards a Heating Oil Crisis

By Robert Rapier | Tue, 16 October 2012 22:22 | 0

The Energy Information Administration (EIA) last week reported on a potential crisis for heating oil customers in the Northeast part of the United States. In This Week in Petroleum (TWIP), the EIA reported:

For the week ending October 5, distillate inventories in the U.S. Northeast (PADDs 1A and 1B) were 28.3 million barrels, about 21.5 million barrels (43 percent) below their five-year average level (Figure 1). Distillate inventories have historically been used to meet normal winter heating demand but are also an important source of supply when demand surges as a result of unexpected or extreme cold spells. The low distillate inventories could contribute to heating oil price volatility this winter. In addition, outages at several major refineries, notably Petroleos de Venezuela’s Amuay Refinery, Shell Oil’s Pernis Refinery in the Netherlands, and Irving Oil’s Saint John Refinery in Canada, have added to the fundamental market pressures in the Atlantic Basin.

The figure below indicates a potential for very high heating oil prices if this winter is particularly cold:

Weekly US Northeast Total Distillate Inventories

As shown in the figure, distillate inventories this year are far below historical levels as we head toward winter. (Although a portion of the reason is due to a shift toward natural gas for heating). Also noted in the report was that this year New York is requiring for the first time that the sulfur content of home heating oil be no more than 15 parts per million (ppm), which is equivalent to the specification for ultra-low sulfur diesel fuel (ULSD). This will likely increase the cost of ULSD for consumers.

Related Article: Iraqi Oil Problems are Global Oil Problems

If the winter is mild, then the lower inventories may turn out to be a nonissue. But right now they have the potential to turn into a big problem for consumers in the event of a cold winter. My advice to readers in this area would be to play it safe and top off those tanks. Right now home heating oil for January delivery is only about four cents cheaper per gallon than for November delivery, but waiting entails significant risk of spiking prices given the inventory picture.

By. Robert Rapier

Link to Original Article: The Potential for a Heating Oil Crisis

Be the first to comment on this article.

Leave a comment