Global disruptions in the energy supply chain are becoming a cause of concern for households and industry. Supply shortages in energy used for heating, specifically, could become a problem for the winter ahead in the U.S. and Europe.
Prices for heating oil are down 30% since March, according to a Bloomberg report. Yet this can be explained by a natural drop in demand during the warmer months of spring and summer, which does not necessarily reflect a long-term downtrend.
According to columnist and author Javier Blas, the U.S. and Europe are not recovering their stocks of middle-distillates (like heating oil) at the rates they should in order to meet winter demand.
The rate of recovery is one order of magnitude below its usual pace. In the U.S., inventory stock of middle-distillate barrels is only up by 2 million barrels since the winter, when the country normally adds 20 million new barrels between April and September.
On the East Coast, inventory levels of middle-distillate (namely diesel, gas oil, heating oil and jet fuel) are the lowest they’ve been since 1992. The Northeast region (including New England and the Mid-Atlantic) accounts for over 80% of the use of heating oil in the country.
Finding Alternatives
According to the Consumer Price Index, the price for energy of all types, including services and commodities, in July was up by 32.9% from the same month last year.
Energy commodities like gasoline and fuel oil were up 44.9% while piped gas utility rose by 30.5%.
July rates showed an improvement from June, dropping 4.6% in the case of all energy commodities and services. Still, the coming winter might present new challenges as consumers and companies renew their need for heating sources.
In Germany, consumers are already looking for alternatives to natural gas in order to fuel their need for heating. Google searches for the word “brennholz”—firewood in German—rose substantially, even during the extreme heatwave Germany experienced in July.
Germans are currently struggling with energy supply shortages, as the country finds itself with limited Russian gas supplies, severely affected by the Russia-Ukraine conflict.
Last week, Germany’s Commerzbank said that Russian cuts in natural gas could trigger “a severe recession” for the European country, with gas rationing probably becoming inevitable.
In the U.S. the trend hasn’t yet caught on, which might be even more worrisome, as an unexpected spike in the price of middle-distillates could catch American consumers by surprise. If a lack of inventory for heating oil and other middle-distillates brings prices to unaffordable levels, consumers will move in mass to other heating alternatives this winter, an event that could further destabilize the price of all energy services and commodities.
Photo by KWON JUNHO on Unsplash.
