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Heating oil, diesel and gasoline make a toxic mix

$100 crude, rising U.S. distillate exports heat up the energy market

SAN FRANCISCO (MarketWatch) — Oil prices back above $100 a barrel, rising U.S. exports and falling stocks of distillates, and growing demand for both heating oil and diesel may prove to be a toxic mix for energy consumers this winter.

Crude is now back over $100, <b>“so those input costs to refiners are going to roll down hill to consumers who are already strapped with high costs and debt </b>,” said Kevin Kerr, co-editor of Global Resource Hunter, a trading newsletter at Weiss Research.


1/ “Heating oil supplies have been ample so far, <b>but the cold weather is just starting to set in, and a long, protracted winter could turn this into a very expensive season for consumers, </b>” he said.


2/ Meanwhile, U.S. households in the <b> Northeast mostly use heating oil as a heating fuel during the winter months and the average household may spend 10% more this winter for heating oil, </b>according to an Energy Information Administration forecast.

3/ Farmers also use diesel to power their equipment for harvesting crops, which is currently underway.

4/ And with higher demand for those products, refiners may choose to shift more output away from gasoline toward making heating oil and diesel, both of which are classified as distillates.

5/ “Refineries need to adjust their production schedules to build inventories of heating oil in order to meet winter demand,” said Jeffery Born, a professor at the College of Business Administration at Northeastern University in Boston. “This usually means cutting back gasoline production.”

6/ “By now, we should be starting into the heating season and refineries should be drawing down on gasoline stocks for the Thanksgiving and Christmas holidays and moving into production of heating oil,” said Born, but “it feels like September [and] if we are still driving like September, this could be putting upward pressure on gasoline prices.”

- <b>Americans spend about 8% of their household income to pay for gasoline,</b> he said. They’re “on a course that will deliver the most expensive year ever for fueling the country’s automobile fleet” and “the trajectory implies that next spring may well deliver the most expensive month, days and week on record.

<b> Export Climb</b>
Exports of distillates have climbed around 27% as of the week ended Nov. 11, from the week ended Sept. 2, EIA data show.

“U.S. refiners have the advantage of being able to refine the low quality crude and because of lower U.S. demand, they have spare capacity,” said James Williams, an energy economist at WTRG Economics (consult on expertise) . These refiners can get higher prices for these products on the “international market, which is short of distillates,” and that’s been driving prices higher.

U.S. exports have also likely contributed to the 13% drawdown in distillate fuel oil supplies since early October, based on EIA data.

U.S. refineries have been exporting distillates to Western Europe, which is still trying to catch up with the loss of the sweet Libyan crude oil in the wake of that nation’s military coup d’état this year, said Bob van der Valk, a petroleum-industry analyst based in Terry, Mont.

That, along with the cargoes of diesel fuel being exported to Asian countries, especially Japan, “will keep the middle distillates, such as diesel and jet fuel as well as heating oil, firm,” he said.


Brian Milne, Telvent DTN energy editor and product manager, said “the world prefers diesel fuel, which has greater energy content per gallon, so you get better mileage while emitting fewer [greenhouse gases] when compared with gasoline.”

Data reflect that preference. As of the week ended Nov. 11, the four-week average for U.S. distillate demand was at about 4.3 million barrels per day, while total exports of distillates stood at 948,000 barrels per day. <b>Put another way, U.S. exports are equal to more than 20% of domestic consumption.</b>
<< intersting : US imports crude OIL and exports Distillate after extracting Gasoline >>

So “it’s not just the supply-demand disposition in the U.S., but its global aspect,” Milne said. Distillate prices “are higher than they would be without the exports” and this trend will continue.

 

Interesting article, IV, thanks for sharing

 

Sharks, bats, dragons, where's Marlin Perkins when you need him. You have to have been around the block to know whom i am referring too.

 

So much for the undoing of the spread :eek:

 

nice short play off of the 38.2% retracement line. there also was a pivot point around 100.12 or so.

unfortunately i woke up a bit late to catch it at 100ish so i went short around 99.19 at 10 am eastern and rode it for awhile.

 

You are paper trading, I presume?

Correct me if I am wrong.

 

Out at 9635, +355t

Emotional exit, it's going down more.

 

Nice way to start the week!

Are you looking at 97.5 to short again? I think I'm gonna use the QM and short at 97 and 97.50 if it gets there. 95.50 Seems like it must be a given.