Winter has not even begun in the US Northeast, yet already home heating oil has begun to be rationed, offering the threat that in the deep of winter, there may not be enough to keep furnaces running.
According to a new report in Bloomberg, some heating oil wholesalers have been putting retailers they deliver to on allocation, which means each retailer is only given a set supply of fuel, based upon present availability. That means those retailers will then have to ration their customers. According to Bloomberg, the revelation comes courtesy of Chris Herb, president of the Connecticut Energy Marketers Association, representing roughly 600 family-owned retailers in Connecticut.
The wholesalers have implemented the measure due to extreme tightness in the New York harbor and New England regions with home heating oil stocks in the northeast being roughly a third of normal levels for this period.
The tight market is beginning to worry the White House, where National Economic Council Director Brian Deese called diesel inventories “unacceptably low” and noted “all options are on the table” to increase supplies and lower prices. Diesel and home heating oil are the same fuel, with red dye added to home heating oil to mark it as not subject to fuel taxes.
Part of the problem right now is the extreme backwardation of the diesel market. In backwardation, fuel for prompt delivery is priced higher than fuel for future delivery, so as a result, fuel held over time will be worth less when delivered. Michael Ferrante, president of the Massachusetts Energy Marketers Association noted the effect of that is, “there’s just no incentive to store large amount of product.”
In addition, diesel is just more expensive right now. In New York Harbor, wholesale diesel averaged $4.09 per gallon as of Thursday. One year ago, the same fuel cost $2.46 per Argus Media data.
Sam Livieri, vice president of Apple Oil, a New Haven, Connecticut heating oil supplier, said people are “in shock” when they hear how expensive it is to fill up their heating oil tanks. He said many of his customers are choosing to only partially fill their tanks, and are vowing to not use their heating systems until they absolutely have to. He added, “We are praying, and I mean it, for a warm winter.”
Chris herb noted the high prices are hitting retailers as well, as many cannot purchase as much fuel in the past, because they do not have enough credit in their credit lines.
Although overseas cargos are heading to the region to relieve the tightness in the market, analysts are worried that the energy squeeze which will occur when Europe begins its heating season, and full Russian sanctions packages take effect and tighten the market further, may make the crisis even worse than it presently is.
