Consumers could be paying at least 20% more on their heating bills this winter. Tight oil refining capacity and low stockpiles are expected to keep prices elevated during the colder months.
“Our heating, oil inventories are very low. I mean the lowest, I think, that they’ve ever been. Does it mean that we’re going to have run out of inventories? No, it means that we’re going to have the potential for spikes, particularly in a cold winter,” CIBC Private Wealth Senior Energy Trader Rebecca Babin told Yahoo Finance Live.
Oil analysts point to maxed out refineries as the industry scaled back investments in past years in anticipation of greener energies.
“The US is in this situation because we’ve cut a lot of our refining capacity. So even though we have a lot of crude coming out of the ground, we don’t necessarily have the refiners there to produce it into product to help kind of meet these needs,” she added.“Unfortunately, yeah, 20% to 25%, I think, is kind of where prices are looking. If we get a mild winter, that could come in. But it’s really kind of a weather dependent scenario,” said Babin.
She also points to the escalating tension between Saudi Arabia a founder member of the oil cartel OPEC, and the United States. OPEC+ announced a production cut of 2 million barrels of oil a day earlier this month. The move went against the interests of the Biden Administration, which has been releasing oil from the U.S.’s strategic petroleum reserve (SPR) in order to keep prices lower.
“This is a big deal because this is a market that traditionally trades on fundamentals, supply and demand. And now you have these two huge players kind of at the other end of the pulse, trying to influence the market,” said Babin. She expects the Biden Administration to continue SPR rereleases.
“On the other side of that equation, I think we have OPEC+, which is going to continue to cut production and make sure that the market does not feel a lot of downward pressure,” she said.
“Why are they going to do this? Because the macro environment is super challenging right now with cross currents — Chinese demand as a huge concern, European recession as a huge concern. And they really want to support prices in the near-term and not let the bottom fall out of crude, as it has done in previous cycles,” added Babin.
On Tuesday, West Texas Intermediate futures were trading slightly higher, just about $85 per barrel while Brent crude international hovered above the $93 level.
