U.S. Home Heating Oil Price and Supply During Winter 2000-2001: Policy Options
Publication Date: January 2001
Publisher: Library of Congress. Congressional Research Service
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Research Area: Energy
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Abstract:
During the winter of 1999-2000, historically low stocks of home heating oil, weather that disrupted fuel shipments, and refinery outages contributed to a sharp increase in the price of home heating oil. As the winter of 2000-2001 approached, inventories of home heating oil remained low, and concern has grown about the effect that higher crude prices, colder weather, and anticipated refinery maintenance might have on home heating oil price and supply during the current winter. In the middle of January 2001, prices were roughly $.40/gallon higher than levels of one year earlier. At issue is whether supplies will remain adequate and affordable, and what possible responses are in place or under consideration if shortages develop and push prices higher.
A drawdown of crude oil from the Strategic Petroleum Reserve is one option to address shortages. However, to provide an alternative that would more specifically target home heating oil, President Clinton, in late July of 2000, authorized establishment of a 2 million barrel Northeast Heating Oil Reserve (NHOR) situated in New York and New Jersey. The FY2001 Interior Appropriations (P.L. 106-291) included $8 million for funding the regional reserve, and Congress permanently authorized the NHOR in the Energy Policy and Conservation Act Amendments of 2000 (P.L. 106-469).
Opponents of establishing a regional home heating oil reserve were concerned that the NHOR would be used in circumstances that did not fully warrant it, and that this would discourage private stockbuilding and distort markets. To address this concern, P.L. 106-649 gives the President discretion to tap the NHOR when the price differential between crude oil and home heating oil increases by more than 60% over its five-year rolling average for seven consecutive days, and the differential is continuing to increase. The intention behind this approach is to make the threshold for use of the regional reserve high enough so that oil marketers and distributors are not discouraged from building their own stocks. To the extent that a crude shortage is also contributing to product shortages and high prices, it could be useful to tap the NHOR for refined product while crude is also drawn from the larger SPR. Some have argued, however, that a drawdown or swap of SPR oil should be coordinated with a larger drawdown of stocks worldwide.
Others oppose use of strategic reserves, arguing for reliance upon markets to price and allocate fuel as a more efficient means of coping with spot shortages and price spikes. Policy, from this perspective, should address instead the consequence of high prices on those least able to pay while markets are left to sort out contributing causes for those prices. The Low-Income Home Energy Assistance program (LIHEAP) was originally established in 1981 by Title XXVI of P.L. 97-35 and has been reauthorized several times. It is a block grant program under which the federal government gives states, the District of Columbia, U.S. territories and commonwealths, and Indian tribal organizations annual grants to operate multi-component home energy assistance programs for needy households.