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.
Market Realist’s weekly crude inventory and price series also covers weekly changes in distillate inventories.
Higher demand for the fuel means bullish prices, which are a positive for refineries such as Valero (VLO), Marathon Petroleum (MPC), Tesoro (TSO), and Phillips 66 (PSX). All of these companies are components of the Energy Select Sector SPDR ETF (XLE), and they make up ~9% of the ETF.
Last week, as of March 2, residential heating oil prices averaged ~$3.29 per gallon, ~10 cents per gallon higher than last week and ~94 cents per gallon lower than the price for the corresponding week last year.
Heating oil prices are linked to crude prices. As crude prices began to fall late last year, so did heating oil prices.
Much like natural gas and propane, heating oil sees an accelerated demand in the winter heating season. This time, however, the National Oceanic and Atmospheric Administration’s (or NOAA) projection of mild temperatures for the remainder of the winter should minimize consumer expenditures on home heating compared to last winter.
Lower crude price forecasts have also resulted in lower projected residential heating oil prices. The EIA expects retail heating oil prices to average $2.96 per gallon this winter, $0.92 per gallon lower compared to last year. An average household that uses heating oil as a primary space heating fuel is expected to spend $1,645 for heating purposes this winter. This is $710 lower than last winter.
To read Market Realist’s analysis of recent commodity prices and their effects on energy companies, check out our Energy and Power page.