Reuters: Heating Oil Prices Will Drop This Week

(Image: bulkterminalstorage.com)

Today’s “US Products Outlook,” published by Reuters, focused on distillate (including heating oil) supplies and prices in the Eastern U.S.  The report outlined unique market circumstances will presumably lead to falling heating oil prices this week.  The underlying causes of the projected increase are very low demand and huge oversupply of heating oil in the Northeast and Midwest.

More specifically, the cash product market prices for the premium fuels low sulfur and ultra low sulfur diesel are currently equal to the cash market price for heating oil.  Heating oil and diesel fuel are nearly identical in chemical composition, and can be used interchangeably as heat and vehicle fuels.  With the slightly-higher-quality diesels selling for the same price as heating oil, the supply of heating oil has essentially ballooned to enormous quantities.  One New York Harbor oil trader, quoted by Reuters, summed up the situation: “Heating oil demand is decent but now that the heat pool has been expanded with diesel at the same price I doubt if the demand from cold weather can save distillates.”

As demand continues to shrink and stockpiles of heating oil and diesel swell, the wholesale and retail prices for heating oil will move downward for at least a few days, despite cold winter temperatures.