26 FEBRUARY 2016 | FUEL OIL NEWS | www.fueloilnews.com
over-supply situation. Heating oil is no exception. In all sulfur
grades, heating oil is readily available in the spot markets and the
contango (carry) market structure encourages its continued stor-
age. On the heels of the warmest December in recorded history, it
is unlikely that the heating oil over-supply situation will correct
in the near term.
"Diesel demand growth has been limited because of slow-
ing industrial output—manufacturing in the United States
slowed in December — and we've seen distillate fuel supplies
climb to four-year highs now," Milne said. "From an inventory
perspective distillates have been bearish, frankly, since 2014.
We also had overproduction during the summer where they
were cranking out a lot of gasoline but also a lot of distillate in
the process."
Milne noted that while the United States exports diesel there
hasn't been a big jump in that number and that has trended
relatively the same for the past few years. He also noted that
there's a fair degree of competition for exported distillates. "It's
over 1 million barrels, which isn't bad, but if you're trying to
figure out how to drain down the extra supply there's not a lot
of spots to go," he said. "The heating oil contract, now more
commonly the ULSD contract, fell to an 11.5 year low so it can
be tough to get this off the mat."
Levine noted that in addition to the weather issue, there is
competition from foreign refiners that has rarely been the case
in the past. India in particular has had to find new demand for
its products since Chinese demand has dropped. That distil-
late is now going into Latin America and Europe, replacing
U.S. product.
As already touched on, the mild winter has obviously
had a significant impact on the price of not only heating
oil but all heating fuels. While the winter is not over yet,
February would have to be brutal for there to be a win this
year. But, things are not as grim as they would have been
several years ago.
"No winter through December! Degree days lag behind by
nearly 30%. However, most distributors remain upbeat having
experienced two cold winters (2014/2015), the lowest prices
seen in years and the ability to maintain good margin as they
fight their way through this heating season," said Flick.
This is also the prime hedging window for next season.
What are the dynamics saying for those considerations?
"I think this season is in trouble," said Levine. "Because we
have such a high carry into next winter, it's much too early in
