Refinery Outages Seen Contributing to Record-High Prices

U.S. distillate fuel supplies are unusually tight as winter approaches, which means consumers, particularly in the Northeast, probably will pay record-high prices for heating oil, the Energy Information Administration said in its This Week in Petroleum Report.

Similar to the last several years, the seasonal increase in heating oil demand is occurring against a backdrop of tight global distillate markets in which supply and demand centers are "geographically mismatched," the EIA said. Refinery outages and stricter anti-pollution rules have compounded the supply tightness.

As a result, the traditional structure of the heating oil market has been flipped, with deferred futures prices currently lower than those for nearby contracts. "While U.S. distillate production is high, the global supply-demand balance for distillate fuels has created a price structure that has not encouraged inventory builds," the EIA said.

During the week ended October 5, distillate inventories in the Northeast were 43% below the five-year average for that date. Retail heating oil is projected to average a record $3.80 a gallon during the 2012-13 winter, up 7 cents from 2011-12.

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