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The US Northeast is so short on heating oil that the fuel used to power home furnaces is being rationed even before the start of winter

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The US Northeast is so short on heating oil that the fuel used to power home furnaces is being rationed even before the start of winter.

Some wholesalers in Connecticut are putting retailers on allocation, meaning they can only get a limited amount of fuel based on availability, according to Chris Herb, president of the Connecticut Energy Marketers Association, which represents around 600 family-owned retailers in the state. These retailers must in turn ration their customers.

Watch: Three reasons why there’s a diesel fuel shortage.
Markets: European Close.”

The measure, designed to prevent panic buying, highlights the extreme fuel tightness across the New York Harbor and New England regions that has attracted the attention of the White House. National Economic Council Director Brian Deese told Bloomberg Television earlier this week that diesel inventories are “unacceptably low” and “all options are on the table” to bulk up supply and cut costs to consumers. In New England, where more people burn diesel — the same product as heating oil — to warm their homes than anywhere else in the country, stockpiles are a third of typical levels for this time of year, government data show.

A Third of Normal

US Northeast distillate fuel supplies trail the seasonal average

Source: EIA

A main hurdle to replenishing regional fuel supplies has been a steep, sustained backwardation in the diesel market. Backwardation happens when prompt deliveries are priced at a premium over deliveries in the future, which in effect causes product to lose value over time. “There’s just no incentive to store large amount of product,” said Michael Ferrante, president of the Massachusetts Energy Marketers Association.

Read the Quicktake: What ‘backwardation’ has to do with US diesel squeeze

In addition to the scarcity, there’s also the cost. Wholesale heating oil in New York Harbor averaged $4.09 a gallon on Thursday, compared with $2.46 at the same time a year ago, according to data from price reporting agency Argus Media. For the wholesaler, that means it costs about $1,125 to fill up a 275-gallon heating oil tank, the typical size used in many homes. But consumers will pay well over that figure after markups by the wholesaler and retailer.

Many people are “in shock” when they hear the price to fill up their heating oil tanks, said Sam Livieri, vice president of Apple Oil, a heating oil supplier in the New Haven, Connecticut area. Many of his customers are opting for partial fills and some say they’re not planning to turn on the heat until they absolutely have to.

“We are praying, and I mean it, for a warm winter,” he said.

The pain is real for retailers as well. Some retailers, who pay this wholesale price, are unable to source as much fuel as previous years because their credit lines are strained and they’re under financial stress, Herb said.

A bit of supply relief is on the way. A full Colonial pipeline and overseas cargoes are headed to the region, which should also help ease prices in the short term. Longer term, the global supply squeeze could make the diesel crisis worse as the cold winter months set in and European sanctions come into effect.

bloomberg



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