Pirinc says heating oil prices near 'trigger' for stock release


The Petroleum Industry Research Foundation, New York City, said Wednesday that Northeast distillate prices are near the level that would trigger release of products from the 2 million bbl home heating oil reserve.

The US established the reserve, at locations in New Jersey and Connecticut, to prevent price spikes like those that occurred in New England last January.

In the Energy Policy and Conservation Act reauthorization, enacted last month, Congress defined what "dislocation in the heating oil market" would trigger use of the reserve.

It said a dislocation is deemed to occur only when the price differential between crude oil and the residential price of heating oil in the Northeast exceeds 60% of its 5-year monthly moving average, the condition continues for 7 consecutive days, and the differential continues to increase for the most recent week for which price information is available.

Pirinc said in practice, the Department of Energy is calculating differentials as the difference between the average of New England and Mid-Atlantic residential prices observed weekly (Monday) and the average of West Texas Intermediate spot prices for the prior week.

The research group said, "So far, current differentials are well above the 5-year monthly averages and not far from trigger levels. In part, this is because the trigger levels are relatively low early in the heating season.

"Unlike the situation of late January through early February of this year, the high differentials reflect primarily national conditions rather than special problems in the Northeast."

It said in late November, this season's differentials were averaging about 74�/gal, less than 10� below the trigger and about 22�/gal above the 5-year average.

"In effect, the relatively low seasonal starting levels for the trigger raise risks of meeting conditions for a release of the reserve well before the coldest part of the heating season, although the president would not be required to do so."

Pirinc said differentials were low at the beginning of this heating season�averaging 2-3� in early October�but they have since moved up noticeably, especially since mid-November.

"As of early December, the differential is averaging about 10�/gal, an indicator of limits on ability to supply the region. Currently, pipelines are full and shipping is tight, both at a time when concerns about exceptionally low inventories in the Northeast are encouraging higher, precautionary demands," Pirinc said.

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