Product Price Spreads Over Crude Oil Vary With Seasons and Supply/Demand Balance
Notes:
- Of course, petroleum product prices don’t move in lockstep to crude oil prices, for a number of reasons. We find it useful to look at variations in the spread between product and crude oil prices, in this case comparing spot market prices for each.
- The difference between heating oil and crude oil spot prices tends to vary seasonally; that is, it’s generally higher in the winter, when demand for distillate fuels is higher due to heating requirements, and lower in the summer. (Gasoline, as we’ll see later, generally does the opposite.) However, other factors affecting supply and demand, including the relative severity of winter weather, can greatly distort these “typical” seasonal trends.
- As seen on this chart, the winters of 1995-96 and 1996-97 featured seasonally larger heating oil spreads than the intervening summers. Winter 1997-98 showed less variation, and winter 1998-99 seemed to almost reverse the seasonal norm, as mid-season heating oil spreads dropped as low as 1 cent per gallon. Last winter, of course, was very different, as cold weather and tight supplies caused a spike in Northeast heating oil prices in late January through early February, yielding weekly average spreads of up to 60 cents per gallon.
- This winter, we returned to a more typical pattern than either of the previous two heating seasons, though still with larger-than-typical heating oil spreads. Low pre-season distillate inventories and early cold weather pushed spreads to 20 cents or more for most of the fall. More recently, though, relatively mild temperatures in January and February have allowed inventories to remain stable, and let the spread fall back to about 7 cents.