Prices of Distillate Fuels (Heating Oil and Diesel) Show No Economic Recovery Yet

Demand for diesel in the US has fallen dramatically. (image: treehugger.com)

The last six months have seen much debate about the health of the American economy; many economists have predicted that the long recession should be coming to an end fairly soon.  Amid the economic debates and predictions, one corner of the US economy that is directly tied to the price of heating oil has economic recovery may not be so close after all: distillate fuel prices.

Distillate fuels, oil refined into either diesel or heating oil, are a good reflection of the country’s economy in many ways. For instance, if the demand for diesel is low, it reflects that there aren’t as many trucks transporting goods on the nation’s highways, which means people are still buying less. And if demand for home heating oil is down, it means that people are worried about the months ahead, a possible sign that unemployment and loss of income are still major worries.

Said one analyst in an article on MarketWatch:

“I view distillate demand as a leading economic indicator and there are no real green shoots in recent data,” said Tom Kloza, chief oil analyst at the Oil Price Information Service.

According to the article, demand for distillate fuel stands at 3.38 million barrels of oil per day, down 20% from last year. Coinciding with this, supplies of distillate fuel in June stood at 150 million barrels, which Kloza said is quite likely an all-time high. And according to the National Association of Convenience Stores, there is a stockpile of 41.9 days of distillate fuels, much higher than last year’s total of 27.8 days.

In theory, this should mean that diesel and home heating oil prices are lower than they have been the past few years, when they reached record highs. And the prices of distillate fuels generally follow the laws of supply and demand. According to MarketWatch,

Retail prices for diesel in the U.S. have dropped to $2.60 per gallon, down 46% from the year-ago price of $4.80, according to data from OPIS. A year ago, heating oil futures contracts in New York changed hands at double the current $1.86 per gallon price.

Diesel has dropped so low, in fact, that it now costs less than a gallon of gasoline. As of June 16, the average price of gas was $2.67 per gallon; the average price of diesel was $2.60.

However, other factors can contribute to the price of heating oil and diesel; distillate fuels are an end product of crude oil, whose price can be affected by international geopolitical events. In addition, many have also said that oil speculators have played a large role in the rapid increase in the price of crude oil.