Heating oil prices are lower than they have been in years, and there is a good chance they will stay that way throughout the winter of 2015-16, according to one prominent price analyst.
Tom Kloza, Global Head of Energy Analysis at Oil Price Information Service (OPIS), told Oil & Energy recently, “For this upcoming winter it is hard to make case for prices not to be the cheapest that they have been since the 2008-09 winter, when crude went to $32 a barrel.”
He noted that spot prices recently hit some six-and-one-half-year lows, with high sulfur heating oil numbers in the $1.25 to $1.35/gallon range in the Northeast. “They’ve subsequently recovered to about $1.44/gallon for the higher sulfur material and $1.50/gallon for the low sulfur material,” he said about a few weeks ago. “The prospect of marking up these numbers by perhaps $1/gallon and having happy customers paying $2.25 to $2.50/gallon for seasonal supplies looks promising.”
Kloza said that crude oil has been “incredibly volatile,” with prices dipping as low as $37.50/barrel in mid-August only to approach $50 on the last day of the month. “But the fact of the matter is that the remainder of 2015 should see supply continue to top demand by something in the 1 million barrels/day level, and inventories are at historic highs,” he said. “It’s hard to see a strong recovery in the next six months. Conceivably, the U.S. could see commercial inventories approach 500-million barrels of crude,” he added. “To put that number in perspective, consider that there were many years where the U.S. managed relatively stable supply with just 250-million barrels of crude. This does not even take into consideration the 690-million barrels in the Strategic Petroleum Reserve.”
There are two other great worries out there, according to the OPIS analyst. “One is of course related to a Chinese slowdown in consumption growth (and economic activity), while the other concerns the consequences of an El Niño winter. Cold weather could prove to be the catalyst that stabilizes winter fuels, whether it be heating oil, kerosene, or even diesel, but lack of cold weather could push crude oil values below the August low.”
For many heating oil retailers, Kloza said, “There’s probably a sense of nostalgia where tankwagon loads can be purchased at 35 to 40 percent of the costs incurred in the 2013-2014 winter, for example.” He said his best guess at prevailing retail heating oil prices in the November-March period would put wholesale values in the $1.50 to $1.60/gallon level (or less), which would point to less than $2.50 gal for home delivery. Compared to some of the $4/gallon numbers common in 2011-2014, those prices should result in substantially more disposable income for heating oil customers in northern and southeastern states.”