About 4.8 million US households, mostly in Northeast, rely on heating oil
NEADA Executive Director Mark Wolfe has dialed up his forecast for households that heat with oil. Costs are likely to be 43% higher than last winter, Wolfe said, a sharp revision upward from a roughly 31% jump that his data had indicated only weeks ago. He projects a typical household could pay about $2,500 for heating this winter, up from $1,749 last year.
“The level of uncertainty remains significant because oil prices have been extremely volatile and could move substantially higher or lower depending on the course of the war and disruptions to global oil supplies,” Wolfe said.
The global fuel supply crunch is poised to hit the pocketbooks of millions of Americans well beyond the gas pump. Much of the Northeast is just weeks away from burning heating oil to stay warm, and prices are already soaring in anticipation of the colder temperatures ahead. Retail heating oil prices reached $6.14 a gallon in New York last week, up 66% from a year earlier. Costs run roughly in line with diesel, which hit $6 a gallon on average nationally for the first time two weeks ago and has since soared above $6.50.
Commercial fuel stockpiles around the world have been draining for most of the year due to the closure of the Strait of Hormuz, a key waterway for moving oil in the Middle East. Iran-backed Houthi militants now threaten tankers on the western side of the Arabian Peninsula, and Ukrainian strikes on Russian refineries have reduced global fuel output.
Although most of the U.S. depends on natural gas or electricity for heating, oil is used by about 4.8 million households, mostly in the Northeast and parts of Alaska. A typical home uses about 800 gallons each winter, said Katie Childs, vice president of Tuxis-Ohr’s, a Connecticut supplier. The season usually begins in October.
“Our comments this whole time have been, ‘Thank God it started when we were coming out of the heating season,’ and anticipating that it would be over by now,” Childs said of the war with Iran. “And it’s gotten worse. It’s tough.”
U.S. refiners that churn out heating oil, diesel, gasoline and other products have been running plants near capacity but cannot make up the gap. About 7 million barrels a day of refining capacity in the Middle East and Russia is damaged or constrained — a number that shifts with each drone strike or repair, according to Enverus Intelligence Research. More severe refinery damage can require six to eight months to fix.
“Even if hostilities were to end soon, repair timelines suggest a meaningful portion of damaged capacity could remain offline well into next year,” said Al Salazar, director at EIR.
Distillate oil stocks in New England, which include diesel and heating oil, are at 2.9 million barrels, down from a five-year average of 4.9 million barrels, according to the Energy Information Administration.
Heating oil and diesel are similar refined products with different additives and lubricants. Although heating oil is exempt from the transportation taxes that diesel carries, it has its own delivery costs from drivers who show up at a home or business to fill tanks.
Although families that heat with oil should plan on “substantially” higher costs, not all households pay the latest retail price because of contracts that can reduce or delay the impact of price increases, Wolfe said. A warmer winter because of El Niño could also help.
Skyrocketing fuel prices provide refiners with large profits, but middlemen such as Tuxis-Ohr’s do not see the same windfall. Childs said her company typically operates on a fixed cents-per-gallon markup to cover its costs rather than a percentage markup.
“Our credit risk goes up, our cost of borrowing goes up, our own input costs for transportation and diesel fuel goes up,” Childs said. “It hurts us more when prices are high and we don’t want high prices for our customers anyway. It’s not good all the way around.”
Childs said she is concerned about lower-income families who buy heating oil as they can through the winter. Minimum home deliveries are typically 100 gallons due to trucking costs, but one common energy assistance grant is capped at $500, which no longer covers the cost of even one delivery of heating fuel, she said.
U.S. households that depend on other fuels are likely to face higher heating costs as well, though the increases are not as dramatic. Natural gas customers could pay around 5.8% more, while those using electric heat or propane could pay around 9% more than last winter, according to NEADA estimates.