In petroleum markets, October is typically the time when attention shifts from transportation fuels to heating fuels. Strong global distillate demand and refinery outages have supported prompt distillate prices relative to those in the future. In its October 2012 Short-Term Energy and Winter Fuels Outlook the U.S. Energy Information Administration (EIA) is projecting that retail heating oil prices will average $3.80 per gallon this winter (October-March), which would be $0.07 per gallon above last winter’s average of $3.73 per gallon, and the highest on record. Historically, heading into winter, heating oil prices for future delivery are higher than those for current delivery, encouraging inventory builds. However, this year, prices for future delivery are below current prices, so there is little if any incentive to buy product now and store it for sale later in the winter.

As the northern hemisphere prepares for winter, the demand for distillate fuels is typically strong as consumers fill tanks in preparation for the heating season. This year, as has been the case for the last several years, the seasonal increase in demand is occurring against a backdrop of tight global distillate markets in which supply and demand centers are geographically mismatched. Europe and Latin America produce less distillate fuels than they consume and have been relying on supply from the United States, mostly exports from the U.S. Gulf Coast. This trade has been mutually beneficial because it has provided U.S. refiners with an attractive market that has encouraged high refinery utilization, which also has supported the production of additional gasoline.

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