Now is the winter of our discount distillates

Above-average temperatures will cut heating oil demand in the US north-east this winter, the US Energy Information Administration (EIA) says, after a large stockbuild in the north Atlantic markets. According to Argus Global Markets, meteorologists project above-average temperatures in the US north-east during the coming winter, thanks to the effects of an El Nino weather pattern over the Pacific. Heating oil warms nearly a quarter of all homes in the north-east states, and the region accounts for almost all US demand for the fuel. Federal forecasters expect the number of heating days in the north-east to fall by 13% compared with the 2014–2015 winter. US heating oil consumption will fall by 11% this winter compared with last under the EIA’s baseline forecast.

A mild north-east winter would be a departure from the past three years. Heating oil used to be a 

1mn b/d market in the US winter just over a decade ago before natural gas started to displace it. However, a series of unusually harsh winters in the north-east helped boost US heating fuel demand during the past three years. Heating oil sales were a little over 100,000 b/d higher in the fourth and first quarters of 2012–2013, 2013–2014 and 2014–2015 than during the same periods in 2011–2012 (see Figure 1).

The forecasts are bad news for refiners in the US and Europe, largely because of an unusually rapid middle distillate inventory build this year. High gasoline demand this summer led refiners to boost throughputs, leaving a distillate surplus on both sides of the Atlantic. Heating oil stocks are the highest in the five-state region – including key consumer markets New York, Pennsylvania and New Jersey – since January 2011. In addition, EU-16 middle distillate inventories – the 15 pre-2004 EU accession countries plus Norway – rose to 22mn barrels above typical seasonal levels at the end of September, from being 15mn barrels below average in January.