Prices peaked in early February, and are now dropping. Since these are similar products, their prices usually move together. Retail heating oil and diesel fuel prices follow the spot distillate markets, which had been driven by crude oil prices until recently. Gulf Coast prices did not spike, but were probably pulled slightly higher as the New York Harbor market began to draw on product from other areas, again indicating the Northeast focus of this problem. The late-January heating oil and diesel fuel price surges in the Northeast resulted from a unique combination of low inventories, weather, and supply problems.
Low stocks leave little cushion to absorb sudden changes in supply or demand.
Distillate stocks fell rapidly in late November through December as high crude oil prices and margin pressure discouraged production. By the beginning of January, East Coast inventories were running almost 4 million barrels, or 8 percent, below the low end of the normal range. During the last half of January, cold weather in the Northeast not only increased demand, but also caused supply problems, with frozen rivers and high winds hindering the arrival of new supply. It was reported that utilities were buying distillate both for peaking power and, along with industrial and commercial users, to substitute for interruptible natural gas supplies, further adding to the market pressure. Thus, with new supply being delayed and little inventory to cover the increased demand, prices spiked.