Distillate inventories, which include heating oil, were about 15% below the five-year average as of late August, according to the U.S. Energy Information Administration. A chilly winter could drive heating bills up for Americans this winter, especially as higher demand from European countries and OPEC+ production cuts take hold in international markets, Reuters reported.
“We are living barrel to barrel and there is just no room for errors in the system,” Phil Flynn, analyst for the Price Futures Group, said, according to Reuters. “If we get a cold winter, there are going to be significant price shocks.”
American refiners have not built up large inventories of the distillate-rich varieties of oil in advance of the seasonal demand increase, driven by Americans looking to stay warm in their homes, according to Reuters. A central factor in this development is the lack of abundant supply of medium and heavy- grade crude oil that tend to be distillate-rich.
Meanwhile, OPEC+ has cut its production, and the U.S. has exported much of its excess supply to European allies as they grapple with the fallout from sanctioning Russia after it invaded Ukraine in February 2022, according to Reuters.
Indicating the market’s sensitivity, U.S. diesel futures temporarily spiked to a seven-month high on Aug. 25 following a fire at Marathon Petroleum’s 596,000 barrel per day (bpd) refining facility in Garyville, Louisiana, the third largest of its kind in the country, according to Reuters. Several large refining facilities are also scheduled to go offline temporarily for maintenance throughout the fall, which could remove 2 million bpd form the country’s 18.1 million bpd overall output, Robert Yawger, an analyst for Mizuho, told Reuters.
The White House did not respond immediately to a request for comment.
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