Where does heating oil come from?
Heating oil is refined from crude oil. The United States has two sources of heating oil:
- Domestic oil refineries
- Imports from other countries
Refineries produce heating oil in the distillate fuel category of petroleum products. Distillates include heating oil and diesel fuel. U.S. refineries supply most of U.S. distillate demand. Imports generally supplement supplies during the winter and are mostly for consumers 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 that 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 to help meet demand.
Did you know?
Refiners may delay heating oil production for the winter if consumer demand is high for a seasonal product like 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 Russia and are imported into the East Coast, where the majority 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 customers
Refiners and other suppliers send heating oil to storage terminals for distribution to consumers. For example, heating oil is delivered to a central distribution area, such as New York Harbor. From New York Harbor, it is redistributed by barge to other consuming areas like New England. From its New England destination, it is trucked to smaller storage tanks close to retail dealers' customers, or the heating oil is delivered directly to customers.