Barely a month into fall, and with winter not beginning until December 21st, the American people are already standing there with their backs against the wall for heating costs. The Biden energy policies since he took office are starting to come to fruition. Simply put; heating oil supplies and production are way down, and prices are skyrocketing as a result.
With this combination, there isn’t much that suppliers can do in places like New York and New England. As it stands, many suppliers in Connecticut are putting retailers on allocation levels. This means the people looking for deliveries are also being rationed and paying more for the “privilege” of heating their homes.
National Economic Council Director Brian Deese spoke with Bloomberg News about the situation. He sees the situation with horrifically low inventories as one where every potential option needs to be considered. They simply cannot afford these high prices or ration diesel fuel. In New England, diesel (also known as heating oil) is the most common heating method. With only 1/3 of the usual supply on hand, it is a trying time for them.
As it stands, the market is currently experiencing something called sustained backwardation, which is unusual. This occurs when prompt and on-time deliveries are priced higher than deliveries in the future. This means the product loses its value over time, so nobody has a reason to stock up on it. In turn, that creates scarcity.
This scarcity is the root cause of the massive cost increase. As it stands, the NY Harbor is featuring wholesale heating oil at $4.09 a gallon as of October 20th. Just a short year ago, that same gallon cost $2.65 per data from Argus Media. As it stands, the average heating oil tank is 275 gallons. This means $1,124.75 to fill the tank once, a $616 increase from just a year ago.
Yet, this cost gets even more compounded because those are wholesale prices. Once you add in the wholesaler and retailer markups, it becomes tremendously more expensive. As of October 26th, reports indicated that this 275-gallon tank is roughly $1,647.25 by the time it hits the consumer.
A markup like this might seem massive, but given the workers’ wages, maintenance on the vehicles, insurance, etc. and this isn’t as horrific a jump as one might expect. It’s still not the jump people were expecting, and it certainly isn’t a cost many have the budget for. When you factor in that many people will use 800+ gallons a season, those costs can add up.
Many are opting for partial tanks instead of full ones, and people across the region are hoping for a mild winter. With people holding out as long as possible before kicking on the heat, they run the risk of possibly freezing their pipes or causing other issues that will potentially cost them much more than the full tank. Still, it is a risk they are more than willing to take.
With the Colonial pipeline being filled up and supplies from overseas making their way into the region, they will see some relief in their bills. With the conflict going on in Ukraine, the Saudis threatening to use OPEC+ to manipulate oil futures, and Biden refusing to open drilling, it may end up just being a band-aid on something that needs stitches.