Heating oil is a distillate fuel oil used for domestic heating and, in a moderate capacity, in industrial burner units. Like gasoline and distillates, heating oil consumption or demand trends matter to refineries.
Distillate is a refined petroleum product processed from crude oil. Find out more about trends in distillate fuel and other refined products in our latest weekly crude series on Market Realist’s Energy and Power page.
A higher demand for heating oil means bullish prices, which are a positive for refineries such as Valero (VLO), Marathon Petroleum (MPC), Tesoro (TSO), and Phillips 66 (PSX). All these companies are components of the Energy Select Sector SPDR ETF (XLE).
Last week, as of January 12, residential heating oil prices averaged less than ~$2.91 gallons. This was ~6 cents per gallons lower than the previous week and $1.05 per gallon lower than the price for the same week last year.
Much like natural gas and propane, heating oil sees accelerated demand in the winter heating season. This time, however, the National Oceanic and Atmospheric Administration’s (NOAA) projection of mild temperatures for the remainder of the winter is expected to minimize consumer expenditures on home heating compared with last winter.
Last winter, US population–weighted heating degree days (or HDD) were an estimated 18% higher than the previous ten-year average for November, according to the EIA.
Impact on prices
Apart from the NOAA’s mid-weather forecasts as a result of falling crude prices, the latest “Short Term Energy Outlook” forecasts that US heating oil prices are expected to average $2.90 per gallon, 25% lower than last year, this winter. This will also help lessen household heating oil expenditures by ~33% ($767) compared with last winter, according to the EIA.
Unlike natural gas, heating oil prices are tied to crude oil. The recent decline in crude prices has caused heating oil prices to fall as well, like we saw in the graph above.
For our analysis of recent commodity prices and their effects on energy companies, check out our Energy and Power page.