Distillate Stocks Are Important Part of Northeast Winter Supply

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• The weather alone was not enough to cause the price spike. The low stocks left the area vulnerable to sudden changes in the market, such as the weather change. Why do stocks matter in the Northeast?

• Stocks are normally an important part of PADD 1 winter distillate supply. Over the last 5 years, PADD 1 stocks provided about 15% of supply during the peak winter months of January and February. They are the closest source of supply to the consumer. PADD 1 depends on about 60% of its supply from distant sources such as the Gulf Coast or imports, which can take several weeks to travel to the Northeast. Even product from East Coast refineries, if capacity is available, may take a week before it is produced and delivered to the regions needing new supply. Thus, stocks must be able to meet supply deficits for some time before much new supply can can arrive.

• In PADD 1 this past January, stocks supplied 566 thousand barrels per day or 34 percent of total distillate demand, compared to the usual 16 percent. The high sulfur stocks alone fell 481 thousand barrels per day, covering 48 percent of the East Coast high sulfur heating oil demand that month.

• While other regions had low stocks and cold weather, the Northeast saw the unusual heating oil and diesel fuel price surges as a result of:
  • Its being the largest regional market in the country for heating oil, representing about two thirds of total U.S. heating oil used during the peak winter demand months;
  • Its heavy reliance on stocks during the peak winter demand months;
  • Its reliance on waterborne supply that can be affected by cold weather; and
  • Its large, short-term swings in demand coming from the large utility and interruptible gas consumers jumping into the heating oil market, on top of the increase in demand from home heating oil customers.