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Heating Oil Prices Fell Last Week: Will the Trend Continue?

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Heating oil prices

In its weekly petroleum status report released on December 2, the EIA (U.S. Energy Information Administration) reported that US average heating oil prices were at $2.36 per gallon on November 30, 2015.

US average heating oil prices fell by $0.01 per gallon on November 30—compared to the prices the previous week. As of November 30, the current heating oil prices were $0.96 per gallon or 29.0% less than they were in the same period last year.

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Heating oil prices by region

The East Coast and Midwest residential heating oil prices fell by $0.01 and $0.02 per gallon, respectively, on November 30—compared to the previous week’s prices. The East Coast and Midwest heating oil prices were at $2.36 per gallon and $2.02 per gallon, respectively, on November 30, 2015.

Analysis

Heating oil is used for heating purposes by more than 60% of the US homes during the winter season. This year, the winter heating expenses are much lower than last winter due to falling heating oil prices. This is mainly due to the fall in the crude oil prices. The US and European crude oil benchmarks are trading below $45 per barrel. Since crude oil is the input for refined products production, the prices of refined products like heating oil are also impacted. The ordinary temperatures in the US caused the demand for heating oil to fall. This created a hurdle in the price recovery.

After planned and unplanned outages, refineries are running at the maximum operable capacity. They reached 94.5% capacity for the week ending November 27. This raised more tensions about the price recovery of distillate fuels like heating oil and diesel. Heating oil prices only recover when distillate production falls. Also, heating degree days should be as expected.

Lower heating oil prices decrease refineries’ revenue. Since they sell their produced products at lower prices, the profitably is impacted for refineries like Holly Frontier (HFC), Tesoro (TSO), Marathon Petroleum (MPC), Western Refining (WNR), and Chevron (CVX).

Marathon Petroleum accounts for 1.9% of the Energy Select SPDR ETF (XLE).

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