What’s in your wallet, stays in your wallet. That is until you have to pay for it.

In theory, we are in the “Sleepy Hollow” shoulder season of supply and demand for all the flavours of fossil fuels.

But, we may be in for a rude awakening as the days get shorter, the nights get longer, and the thermostats dial up higher.

Lower temperatures will, of course, increase demand and prices for all forms of fuels required for heating purposes — from natural gas to electricity generated from natural gas – to conventional forms of heating oil liquids from Bunker 6C and Number 2 heating oil.

However, lower temperatures alone are not the only factor that will push up consumer prices.

U.S. inventories of middle distillates (heating oil, jet fuel, and on road diesel) are down 14% while global levels are also suffering. This is mainly because of the perceived effectiveness of the vaccination protocols that have helped to improve consumer confidence to the point where people are back on the road to both work and play.

This new confidence has increased demand for conventional road diesel by 13% and jet fuel, (which is really just ultra-light diesel) by 70% when compared to the same four-week period last year.

Compounding the traditional “arithmetical error” of tight supply and high demand for distillates at this time of year is the imbalance of supply and demand for natural gas, which is now close to a crisis point in Europe.

Some people say, “well, that’s a European problem, it doesn’t affect our diesel and heating oil prices.”

Well, what happens in Europe isn’t staying in Europe. If natural gas is in short supply locally, or prices have reached the point that industry has to shut the doors, then the only option is to import liquid natural gas (LNG) from the U.S.

This is happening as I write, and you read this report. What’s also happening? Gas prices are spiking across North America.

With natural gas prices going through the roof, heavy industry is looking for a price and supply rescue from an old, reliable source: You guessed it — heating oil and diesel.

Hang on to your hats because it’s going to get cold. And, dig out that wallet because it’s going to get expensive.

– Roger McKnight – B.Sc., Senior Petroleum Analyst

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