Bush release of heating oil stocks 'very unlikely': EIA analyst

Washington (Platts)--6Oct2005

Despite high heating oil prices due to hurricane-shuttered Gulf Coast
refineries, the plentiful availability of product and the lack of demand makes
it "very unlikely" that President Bush would decide to release heating oil
from the government's Northeast reserve any time soon, a senior analyst with
the US Energy Information Administration said Thursday.
     "Heating oil prices are up, but all product prices are up as a result of
the hurricanes," analyst Joanne Shore told Platts. "There's no cold snap or
shortages in the heating oil market right now, and that's what the Northeast
heating oil reserve was designed to address."
     Like the crude market's US Strategic Petroleum Reserve, a 2-mil bbl
government-owned Northeast Home Heating Oil Reserve exists that can be that
could be tapped in emergencies.
     EIA, the statistical arm of the US Energy Department, this week began
releasing weekly reports on heating oil prices, which it does each year during
the October-through-March winter heating season. EIA's first report this
season showed retail heating oil prices averaging a record $2.694/gal as of
Oct 3, 86.6 cts/gal higher than the corresponding survey week a year ago. 
     Using those new weekly figures, the DOE's Fossil Energy Department began
updating data on the heating oil-crude oil price differential, one of the
so-called "triggers" for release of product from the reserve. Fossil Energy
determined that there was a $1.103/gal differential between WTI crude oil
prices, which averaged $66.06/bbl ($1.573/gal) for the week, and residential
No 2 Northeast heating oil prices, which averaged $2.676/gal. 
     The NYMEX November heating oil contract settled 6.41 cts lower at
$1.9507/gal Thursday.
     When DOE created the heating oil reserve in 2000 ahead of potential
heating oil shortages during the 2000-2001 heating season, Congress demanded
that very specific guidelines for release be included to give provide market
certainty. The guidelines state that the president can release from the
reserve if he finds that "a regional supply shortage of significant scope and
duration" exists or if there is a "market dislocation."
     Such a "market dislocation" is deemed to have occurred, and the President
may call for a release, if the heating oil-crude oil price differential is
more than 60% greater than its five-year rolling average, exceeds the 60%
threshold for seven days and is increasing as of the most recent observation.
     EIA's most recent data puts the current differential at 62.8% greater
than the five-year rolling average, which marks the first stage of the market
dislocation. The criteria of a full market dislocation could happen next week
if the differential continues to expand, a likely occurrence if
hurricane-damaged Gulf Coast refineries, as expected, remain out of service
until then.
     A market dislocation does not mean a release will happen, only that it
could happen, Shore said. "It's important to remember that the President makes
the decision. This 'trigger' isn't a trigger to release from the reserve, it's
just a trigger to begin looking at the possibility of releasing from the
reserve. It's a discretionary trigger."
     Last winter, and the winter before, price differentials never got
anywhere near the level required to trigger the pronouncement of a market
dislocation. But in December 2000, the first year of the reserve was in
service, the trigger was reached. However, EIA said the differential was
caused by rapidly dropping crude oil prices and that no actual market
dislocation had occurred. No heating oil was released.
     With Northeast heating oil stocks still in five-year average ranges and
home heating demand minimal, there would be little reason for a release,
especially as colder weather and continued refinery outages will likely cause
much higher prices in coming months, Shore said.
--Cathy Landry, cathy_landry@platts.com

For more information, take a trial to Platts Global Alert at
http://globalalert.platts.com.

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.