Distillate heating oil supplies remain low, report says

The Petroleum Industry Research Foundation Inc. (Pirinc), New York City, reports that US distillate stocks still remain a cause for concern, especially if unusually cold winter weather hits the US.

It noted that the Clinton administration's decision to release 30 million bbl of oil from the US Strategic Petroleum Reserve has added to the available world supply of crude and the potential distillate supply available to US consumers.

But it said low heating oil inventories, tight natural gas supplies, and renewed threats to Middle East stability create reasons to worry about heating oil supplies this winter�despite higher distillate production.

It said higher costs for heating homes this winter are all but inevitable, as crude oil and natural gas prices are $10/bbl and $2.50/Mcf higher than last year, respectively. Gasoline prices also are 24�/gal higher than this time last year and heating oil is 36�/gal higher.

Pirinc said low distillate inventories are cause for concern. US inventories of crude and crude products are 75 million bbl below this time last year. The rate of inventory rebuilding from February also has been slow, with no apparent overall recovery during the summer.

The foundation noted that distillate production has risen sharply, particularly the production of high-sulfur distillate. "Refinery runs for the past 6 weeks have been at record levels. Moreover, there is some evidence that secondary inventories are building. Barring an oil supply disruption, or cold weather, world oil market conditions are likely to stabilize, gradually improving prospects of meeting winter needs."

However, distillate supplies, particularly inventories of distillate with more than .05% of sulfur used for heating oil, remain low.

Distillate supplies are down 20% from this time in 1999 versus declines of 4% in gasoline and 5% for crude. Distillate stocks have declined more sharply than other products because refiners focused on gasoline earlier this year.

Pirinc said imports supply a modest volume of distillate, but do play a critical role in meeting winter peak demands.

Oil reserve
The US decision to create a heating oil reserve "couldn't have come at a worse time," the foundation said.

It said the action added to the already intense competition for supply, and placed further pressure on prices. The move also exacerbated the decline of futures prices for heating oil versus the currently strong commodity prices, which in turn created a disincentive to build commercial stocks.

"Concerns about under just what circumstances the reserve will be used could potentially interfere with increases in product imports, the US's critical winter supply safety valve," the foundation noted.

It also said requirements by New York state and New Jersey for minimum stocks came at a poor time. They require utilities to have 6-10 days of heating oil supplies in storage or have contracts allowing them access to that much supply. The requirements aggravated price pressures when utilities began buying supplies to meet deadlines of Oct. 1 in New York and Nov. 1 in New Jersey.

Pirinc said some industry groups have urged the US to ban distillate exports temporarily, but an embargo against nations such as Mexico, which exports large quantities of crude to the US, could result in retaliatory cuts.

Pirinc urged a temporary waiver of the Jones Act, which requires that shipments between US ports be made on US-flagged ships, since no more US-flagged ships are available to move oil from Gulf Coast refineries to the East Coast.

It said states and the Environmental Protection Agency could relax product specifications to improve potential supply.

"Government could also help by collecting and providing information on what is a 'black hole', namely the state of secondary and tertiary inventories," Pirinc said.

Related Articles

Encana plans to hit the ground running in Permian

12/12/2014 Encana Corp. has announced its second major acquisition in a Texas oil play this year, agreeing in September to acquire Permian basin-focused produ...

Moody's: E&P spending to dip as crude oil prices slide

12/08/2014 Weakening crude oil prices will cut exploration and production spending by independent producers in the US next year and make integrated oil and ga...

US proved oil, gas reserves continue to climb

12/04/2014 US proved reserves of oil and natural gas have increased by 9% and 10%, respectively, according to the US Energy Information Administration. The 3....

US-African energy moves

12/01/2014 Getting electricity to more Africans is a top priority at the US Department of State's Bureau of Energy Resources (ENR), an official told a House F...

Global reserves, oil production show increases for 2014

12/01/2014 Oil & Gas Journal's annual look at worldwide proved reserves shows increases compared with a year ago. Reserves estimates for crude oil and lea...

Oil & Gas UK rebuts industry-subsidy claim


Oil & Gas UK has issued a sharp rebuttal to reports that UK producers enjoy generous governmental subsidies.

Gas price uncertainty could defer projects, Niko says

11/17/2014 Niko Resources Ltd., Calgary, says uncertainty regarding natural gas price premiums in India could cause deferral of development of certain discove...

What's sustainable?

11/17/2014 Sustainability is eternally important and perpetually enigmatic. It's like justice: widely seen as embodying transcendent value yet defined in disp...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts

On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.



Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected