Declines in the dollar helped lift crude and heating oil prices on Wednesday, brining higher retail prices on Thursday. (images: slate.com, Nicholas Whitaker for HeatingOil.com)

Oil prices continued their upswing on Thursday, supported by a retreating dollar and rising stock values in the US. Fundamental forces, on the other hand, continue to offer little support to prices as sluggish economic growth has kept demand low and supplies full to almost overflowing for months; Wednesday’s petroleum inventory report from the federal Energy Information Administration showed increases in inventories of all three categories of petroleum products. That fact points to recent gains by crude, heating oil and gasoline on the commodities market being short-lived. Beginning on Wednesday and continuing through Thursday morning however, prices have been rising sharply and lifting retail heating oil prices along with them in what some analysts are calling an upside correction. A new jobs report due out on Thursday, if it shows another substantial increase in unemployment claims, could deflate the mini-rally and send prices falling on Friday.

Today’s average retail heating oil price in the Northeast is 4 cents higher per gallon than Thursday’s average price.

A bearish inventory report kept the price of crude oil down on Wednesday morning, but a surging stock market and weak dollar led it higher by the afternoon. (image: ft.com)

Oil prices turned around on Wednesday afternoon after five losing days on the power of a weakening dollar. The increases in crude, heating oil, and gasoline prices came as something of a surprise, as the EIA’s petroleum inventory report showed an increase in all three categories last week. Increases in crude, gasoline and distillates (which include heating oil) usually send prices downward, as they are a sign of a decrease in demand and consumption. But a weaker US dollar and rising stock markets were enough for traders to look beyond the bearish signs of the inventory report and invest in oil. The unexpected reversal will likely bring a substantial increase in retail heating oil prices on tomorrow.

Today’s Closing Prices at the NYMEX

Crude oil (October 2010 contract): Up 1.7 percent, $72.52 a barrel
Heating oil (September 2010 contract): Up 1.8 percent

A reported decrease in the amount of crude oil in storage in the US gave heating oil prices a small boost at the NYMEX on Wednesday morning. (images: Enbridge Energy Company via nyt.com, Nicholas Whitaker for HeatingOil.com)

Crude and heating oil prices fell for the fifth consecutive day on Tuesday, driven down by new signs that the US economy’s recovery is stagnating and the risk of a double-dip recession is high. The biggest news came from the Chicago Federal Reserve, which specifically stated that a double-dip recession is more likely now than it was six months ago. Tuesday’s price declines brought moderately lower retail heating oil prices on Wednesday morning. Today at the NYMEX, an inventory report from the American Petroleum Institute (API) that showed a decline in crude inventories last week gave a modest boost to oil prices, but data showing durable goods sales rose less than expected last month tempered gains. Ahead of the Energy Information Administration’s (EIA) report on petroleum inventories, to be released at 10:30 am Eastern Time, the price of crude was slightly lower than its open and the price of heating oil slightly higher. Both will likely post significant gains if the EIA report confirms the API’s news of a decline in crude oil inventories.

Today’s average retail heating oil price is 2 cents lower per gallon than Tuesday’s price.

Ultra-low sulfur diesel will be the required heating oil by 2012 in several Northeastern states. (image: dep.state.pa.us)

The Energy Information Administration’s This Week in Petroleum newsletter, released on Wednesday, provides a nice summary of the transition to cleaner heating oil in Northeastern states.

In addition to the current status of low-sulfur and biodiesel content mandates in the 12 states that make up the Northeast, plus New York City and Washington, D.C. (table reproduced below), the newsletter provides heating oil consumption statistics and touches on challenges the industry faces in transitioning to a cleaner fuel. According to a 2008 report, New York is the biggest heating oil consumer, accounting for 23 percent of the US total, followed by Massachusetts, Pennsylvania (both 13 percent) and Connecticut (11 percent). The report states that the US consumes 4,648,017 gallons of heating oil per year.

The newsletter acknowledges that the goals of the states are to reduce air pollution and cut down heating system maintenance and repair costs, but notes some supply obstacles and possible price increases that could result from pending mandates. Low-sulfur mandates may at first result in reduced fuel imports, the report states, because production of low-sulfur distillates is limited in other parts of the world. As a result, bouts of cold weather could bring price spikes, as imported heating oil is often used to meet sharp increases in demand. The report also notes that required changes to refinery infrastructure and the higher cost of storing and shipping low-sulfur fuel could result in higher wholesale and retail heating oil prices.  However, it should be noted that theses conclusions are based on data published in May of 2001, and may not be completely accurate, as significant changes may have occurred in the refining and heating oil industries over the last decade.  The National Oilheat Research Alliance (NORA), an organization funded by the heating oil industry, released its own report on the transition to low-sulfur heating oil in May of this year that contradicts some of the EIA’s conclusions.  Most notably, the NORA report found that “For consumers, the higher cost of ULSD [ultra low-sulfur diesel] relative to heating oil will be more than offset by lower maintenance costs and higher fuel efficiency.”

Clearly, the move to low-sulfur heating oil has the potential to affect heating oil supply dynamics and heating oil prices. The question is, will possible short-term price increases be offset by lower maitenance and repair costs as NORA claims?  If so, how long will it take for the average consumer to recoup increased costs?  These questions will continue to be debated by various elements in the petroleum industry, and the answers will only become clear once the first low-sulfur requirements take effect.  For a more in-depth look at the pros and cons of low-sulfur and biodiesel mandates for heating oil users, take a look at this HeatingOil.com post from March of this year that compares arguments for and against mandates in Connecticut.

(image: "Current Northeast State Regulatory Activities to Reduce Sulfur in Heating Oil" from eia.gov)

]]> http://www.heatingoil.com/blog/eia-gives-overview-of-northeastern-states%e2%80%99-plans-for-low-sulfur-heating-oil819/feed/ http://www.heatingoil.com/blog/heating-oil-price-trend-for-august-19-no-change819/ http://www.heatingoil.com/blog/heating-oil-price-trend-for-august-19-no-change819/#comments Thu, 19 Aug 2010 14:38:08 +0000 Josh Garrett http://www.heatingoil.com/?p=18261

Mixed inventory numbers from the EIA kept oil prices flat at the NYMEX on Wednesday. (image: sais-jhu.edu)

A mixed inventory report from the Department of Energy’s Energy Information Administration (EIA) released on Wednesday morning brought little change to crude and heating oil prices at the NYMEX yesterday. The report showed modest decreases in crude and gasoline stockpiles and a sizable increase in distillate inventories, which include heating oil. The market prices of crude and heating oil both ended the day slightly below their opening positions, and the result was flat retail heating oil prices for Thursday. Oil prices rose in early trading on Thursday morning, boosted by expectations of strong demand from China. By 10 am Eastern Time, however, both crude and heating oil prices had turned slightly below their opening prices.

Today’s average retail heating oil price in the Northeast is unchanged from Wednesday’s price.

The price of crude recovered from some midday losses, but still closed lower on the NYMEX. (image: ft.com)

Petroleum inventory data from the EIA released this morning, though less bearish than yesterday’s report from the API, held down crude and heating oil prices on NYMEX for the course of the trading day. The EIA report showed modest decreases in crude and gasoline supplies (810,000 and 39,000 barrels, respectively), but an increase in distillate stockpiles (1.1 million barrels), which include heating oil. The declines in gasoline and crude stocks were not enough to allay concerns that economic recovery will continue to move at a snail’s pace in the US and keep a lid on demand for petroleum products. The build in distillate stocks will likely keep retail heating oil prices flat tomorrow.

Today’s Closing Prices on the NYMEX

Crude oil (September 2010 contract): Down 0.5 percent, $75.42 a barrel
Heating oil (September 2010 contract): Down 0.1 percent