Where does heating oil come from?
Heating oil is a distillate fuel sold mainly for use in boilers, furnaces, and water heaters. The United States has two main sources of heating oil:
- Domestic oil refineries
- Imports from other countries
In recent years, some heating oil suppliers have begun offering heating oil blends of petroleum distillate and biomass-based diesel fuels (biodiesel and renewable diesel fuel) to consumers. This blended heating oil is generally 5% biodiesel by volume.
U.S. refineries supply most of U.S. distillate demand. Heating oil imports generally supplement supplies during the winter mostly to help meet consumer demand in the Northeast. Distillate products are moved throughout the United States by pipelines, tankers (ships), barges, trains, and trucks.
Winter heating oil inventories are built up during summer and fall
Refiners have limitations on the amount of heating oil they can make to meet consumer demand during the winter heating season. Refiners can increase heating oil production in the winter, but increasing distillate production means they also have to produce greater amounts of other petroleum products. If no market exists for larger volumes of other petroleum products, this lack of demand may limit the amount of extra heating oil that they produce. Therefore, some of the heating oil that refiners produce in the summer and autumn is stored for delivery in the winter. During the winter, heating oil suppliers use these stored inventories/stocks to help meet demand.
Refiners may delay producing heating oil for the winter if consumer demand is high for a seasonal product such as gasoline. This delay may result in lower heating oil inventories at the beginning of the heating season. This scenario happened in September and October 2005 after Hurricane Katrina and Hurricane Rita shut down some Gulf Coast refineries. As gasoline prices increased to more than $3.00 per gallon, refiners had an incentive to produce more gasoline at a time when they would normally concentrate on heating oil production.
Imports supplement domestic production
The United States imports heating oil from other countries to supplement U.S. refinery production and inventories. Most U.S. imports of distillate come from Canada and are imported into the East Coast, where most of U.S. residential sector heating oil consumption occurs. On average, East Coast distillate imports are highest during the winter months to help meet heating oil demand.
How heating oil is transported to consumers
Refiners and other suppliers send heating oil to storage terminals for distribution to consumers. For example, heating oil is sent to a large central distribution area, such as New York Harbor, and then it may be transported by rail or barge to other storage facilities in the Northeast. From those facilities it is trucked to smaller storage tanks close to retail dealers' customers or delivered directly to consumers.
Last updated: November 9, 2020