The U.S. energy industry has sharply reduced its production of heating oil in favor of cleaner, higher-profit fuels like diesel -- a move that could see the nation relying more heavily on imports next winter heating season, analysts said Wednesday.
The move has led to a sharp fall in heating oil stocks in recent months but energy experts said it is unlikely the United States will face a crunch due to the wide availability of foreign shipments.
Will we have enough heating oil? More than enough. Will it be produced in the United States? A lot of it won't be, said Mark Routt, analyst at consultancy Energy Security Analysis Inc. in Boston.
U.S. heating oil supplies have dropped more than 20 percent since March, in part because of widespread problems at the nation's refineries, bringing them roughly 35 percent below the same time a year ago, according to data from the U.S. Energy Information Administration.
At the same time, however, overall distillate supply, which includes heating oil, diesel and jet fuel, has grown by more than 2 percent, the EIA said.
Gasoline prices have surged this year amid widespread refinery outages that have forced the United States to import large volumes of hard to make high quality gasoline blendstocks to meet strict U.S. fuel specifications.
But specifications for home heating oil are much less strict, making it much easier for simple overseas refineries to produce shipments for the U.S. market.
It is clearly much easier to get imports of heating oil than diesel. So the oil industry may be stocking up on diesel with an eye to relying more on shipments for heating oil supplies next winter, said Doug MacIntyre, EIA analyst.
The tightening supply of heating oil -- which has been obscured by the shadow of a U.S. gasoline crunch -- has led to a sharp increase in heating oil futures prices on the New York Mercantile Exchange, with an influx of speculators boosting net long positions much earlier in the year than usual.
NYMEX July heating oil futures rose 2.5 percent on Wednesday after weekly government data showed another decline in heating oil stockpiles last week.
Speculators in the heating oil market more than doubled net long positions in the week ended June 5 to 17,156, according to the Commodity Futures Trading Commission.
People are already looking ahead to the next heating season, said Peter Beutel, president of Cameron Hanover. It seems to me that the refining industry is abdicating some form of public responsibility by relying on the kindness of strangers to ship their fuel over.
U.S. refinery utilization rates have struggled below 90 percent of capacity most of this year, with planned and unplanned repairs taking a toll on fuel output.
Some analysts have said the U.S. refining industry is having a hard time keeping their aging refineries running properly amid tough environmental regulations.