Hot Stove SeasonWhile baseball fans in the Northeast may no longer gather around hot wood-burning stoves to warm their hands while debating the merits of trades and signings in anticipation of spring training, many are turning up the thermostat in their oil-heated homes as the temperatures dip during the nightly broadcast of SportsCenter.
The Northeast, which includes New England and the Central Atlantic regions, has traditionally been the main region using heating oil as a residential heating fuel. In 2004, 5.5 billion gallons of heating oil were sold to residential consumers in the Northeast; this comprises 82 percent of total residential heating fuel sales in the U.S. Not only do consumers in the Northeast use heating oil more than in any other region, 78 percent of all households that use heating oil as the primary heating fuel are located in the Northeast.
EIA uses the Petroleum Allocation for Defense District (PADD) boundaries as the basis for its regional petroleum supply reporting. Heating oil (high-sulfur distillate) inventories are reported for the entire East Coast (PADD I), as well as broken down into three sub-PADDs, PADD IA (New England), PADD IB (Central Atlantic), and PADD IC (Lower Atlantic). It is not unusual to see an imbalance between the relative inventories of heating oil stocks in New England and the Central Atlantic as compared to each area’s respective level of product demand. For example, in 2005, the Central Atlantic held about 69 percent of Northeast heating oil inventories even though it only accounted for 60 percent of Northeast sales (Prime Supplier sales data are used as a proxy for implied demand.)
This phenomenon is mostly a function of the hub of petroleum and shipping infrastructure located in the New York-New Jersey corridor, which is part of the Central Atlantic region. Most imports that come in from Europe to supplement heating oil supplies enter the U.S. on the East Coast, and New York Harbor is the major East Coast hub. Other waterborne shipments from the U.S. Gulf Coast, Venezuela, and the Virgin Islands also enter into New York Harbor. Additionally, there are several pipelines that run into the region, as well as the Pennsylvania, New Jersey and Delaware refineries. There is also a high concentration of storage available in the area due to the high volume of product moving through the region. Product will often be stored in the Central Atlantic region until temperatures drop in New England, increasing demand and pulling product northward. Recognition of these factors leads EIA analysts to evaluate Northeast (New England and Central Atlantic) inventories as an aggregate rather than their individual pieces.
The charts below illustrate the history of New England and Central Atlantic inventories compared to their 5-year average range. Although inventories in both regions are above the average range prior to the first cold snap, this winter’s weather remains a key uncertainty and will be a major determinant for how quickly heating oil stocks are drawn down this winter. Additionally, inventories for the closest substitute to heating oil, diesel fuel, are relatively tight, which could put upward price pressure on both diesel fuel and heating oil if cold weather increases distillate demand sufficiently.