SOUTH PORTLAND — After sailing across the Gulf of Maine from the Irving Oil refinery at Saint John, New Brunswick, the 600-foot-long oil tanker New England was docked last Sunday at the Buckeye/Irving terminal here, unloading cargo. The sight was a welcome one for fuel oil dealers, who are nervously watching an energy market shaken up by high wholesale prices and lower-than-normal product in storage.

Already, dealers are having trouble getting kerosene, which is used to heat many homes with outdoor fuel tanks.

“Where the prices have been so high, wholesalers have kept their inventory low,” said Pam Giordano, general manager at Dodge Energy in Gorham. “They don’t want oil in storage if the price drops.”

Giordano and other industry insiders are monitoring a heating oil market that they describe as volatile and unpredictable. Even unprecedented.

Last week, the head of the Connecticut Energy Marketers Association told Bloomberg that heating oil wholesalers are putting dealers on an allocation, limiting the amount of fuel they can buy at terminals in that state. The rationing, expected to be passed on to customers, is intended to prevent panic-buying if the winter is extremely cold and supplies are short.

That doesn’t appear to be happening in Maine at this point, according to Charlie Summers, president and chief executive of the Maine Energy Marketers Association.

“Everyone is watching closely,” Summers said of his trade group’s members. “But Maine has always been in a pretty good position because we have storage north and south, and many retailers have their own storage facilities.”

Still, the chaos in energy markets is unsettling for Mainers who warm their homes and businesses with heating oil and kerosene. The state’s consumers are heading into winter with average fuel prices at an all-time high.

The average statewide price of heating oil hit $5.43 a gallon on Oct. 17, according to survey data from the Maine Governor’s Energy Office, $2.40 a gallon more than roughly the same time last year. It dipped a penny to $5.42 in last week’s survey, although prices ranged around the state from a high of $6.00 to a low of $4.30. The statewide average for kerosene was $6.43 a gallon.

One factor for the pause may be unusually warm weather both on the East Coast and in Europe. That’s reducing global demand, and it’s keeping thermostats from clicking on as often in Maine.

The current statewide average eclipses highs of $3.79 in 2008, and $3.90 in 2014, even when adjusted for inflation. Average heating oil prices did briefly spike at $5.78 a gallon last May before subsiding, but because the heating season was over, they had little impact.

The heating oil roller-coaster is being powered by the untimely convergence of several adverse factors – global, national and regional. And they are hitting Maine especially hard, because no other place in the country is more dependent on fuel oil and kerosene, which still warm six of 10 homes. In a typical year, the state burns through more than 200 million gallons of fuel oil and kerosene.

FAR-RANGING FACTORS

Here’s how some key factors are coming together to create an anxious winter for many Mainers.

Global influences: Russia’s natural gas cutbacks to Europe have forced some European power plants to burn oil to generate electricity. That has reduced refined oil imports into the eastern U.S. by double digits.

Maine is unusual in that its dominant supply of heating oil comes from Canada. Last year, 82% of the fuel, as well as 84% of the state’s gasoline, came from Canada, according to the U.S. Energy Information Administration.

Irving Oil declined to answer specific questions last week about its heating oil exports, except to say the company is a key supplier to Maine and the region and is committed to providing safe, reliable service. But it’s a good bet that the majority of Maine’s heating oil comes from Irving’s Canaport refinery in Saint John. The largest in Canada, it can produce 13 million gallons of petroleum products a day. In addition to the tanker New England, which is registered in the Marshall Islands capital of Majuro, Irving operates four sister ships that deliver petroleum products used in Maine at terminals including Searsport, Bangor and Portsmouth, New Hampshire.

The price of heating oil has been shooting up and down on wholesale markets this year like the EKG of a heart attack. Last March, the price fell from a high of $4.43 a gallon to $2.97 in two weeks. The price jumped up to $4.40 in mid-June, then plummeted to $3.04 in late September. By early October, oil was at $4.03 a gallon, before falling to $3.48 later in the month.

“The volatility is hard to explain over the past few months,” said Andrew Price, president and chief operating officer at Competitive Energy Services in Portland, which helps large users negotiate contracts.

Global supply disruptions in the energy markets are one likely factor, Price said. The European Union ban on Russian crude oil, set to take effect in December for crude and in February for products such as heating oil, has power plants and factories stockpiling fuel, including natural gas. But a warm October has reduced energy demand for the moment, and prices are falling.

That may have energy traders looking for higher-priced markets, such as the East Coast. Of note, the oil tanker Sea Caelum left the Netherlands petrochemical port of Terneuzen on Oct. 21, according to Marine Traffic, which tracks international vessel movements. It’s in the Atlantic Ocean heading to Portland Harbor, due to arrive around Nov. 2.

National limits: Petroleum refiners that were whipsawed during the pandemic have since recorded strong profits, as energy demand rebounded. A weakening economy could temper that demand. But federal energy officials still expect refinery margins – the price difference between wholesale oil and the benchmark price of crude oil in Europe – to be a key driver. The margins could add 64 cents per gallon to heating oil prices this winter, compared to last year.

Regional shortfalls: Oil in storage at East Coast refineries and terminals has been at low levels, 57% below the five-year average in September, according to the EIA. There’s no way to gauge the status of Maine’s tank farms, however, because company-specific information is confidential.

What is clear is that wholesalers have been reluctant to fill their tanks because of a market condition that commodity traders call backwardation. That means that contract prices set for the future delivery of oil this winter are lower than the spot, or cash price, today. In a backwardated market, there’s no incentive to fill up, because the stored product could be worth less in the future.

These tight heating oil supplies are exacerbated by limited refining capacity on the East Coast. Several refineries have shut down in recent years, and no new ones are being built.

A prime example is Philadelphia Energy Solutions, which was crippled by explosions in 2019. The accident led to bankruptcy and the shutdown of what was then the largest refinery on the East Coast. That closure erased 1.4 million gallons a day of refined petroleum, which isn’t being replaced, Price said, because investors see a slow, unstoppable shift to electric vehicles and heating.

“Who’s going to invest billions of dollars when we expect declining usage,” Price said. “But in these transitional years, we’ll see a lot of volatility.”

The loss of Philadelphia is part of a trend that has reduced the amount of domestic heating oil available on the East Coast, according to EIA data. In 2010, there were 13 refiners in the region. Now there are seven. Total production capacity has fallen from roughly 2.1 million gallons to 1.4 million, EIA data show.

“We’re looking at a region,” said Matthew French, an operations research analyst at the EIA, “that was already tight in the ability to supply itself, versus the Gulf Coast, which produces more oil than it uses.”

WINTER SHOCK

Taken together, these factors have led the EIA to project average heating oil prices in the Northeast this season of $4.54 a gallon.

That means a household that burns 520 gallons a year will spend $2,360, which would be 27% more than last season. This calculation also considers the government’s long-range forecast for a Northeast winter that will be 5% colder than last season, leading to 9% more oil consumption.

And just producing more crude oil wouldn’t by itself lower heating prices in Maine, French noted, because oil is traded on global markets.

“You can’t produce your way to cheaper heating oil,” he said.

This winter’s price shock is likely to prompt more Mainers to weatherize their homes and businesses and switch to more efficient heating systems. Pending rebates contained in the federal Inflation Reduction Act will help lower the cost of insulation, solar panels and high-performance heat pumps.

But right now, there are varied resources available to help Mainers prepare for a tough winter, including government assistance programs, payment plans with dealers and a new, up to $100 rebate from Efficiency Maine to help buy do-it-yourself weatherization products. These and other aids are summarized on an updated winter season resource guide that can be downloaded from the Maine Governor’s Energy Office website.

‘THERE IS NO NORMAL ANYMORE’

On a warm and foggy morning last week, traffic was light by Sprague Energy’s “rack.” That’s what industry insiders call the metal-frame loading bays that oil and gasoline trucks pull under at the terminals that supply refined petroleum products.

Kevin Walsh, a driver for Dodge Energy, said he might come to the rack twice in a day during a cold snap to put heating oil into his truck, which can hold 2,800 gallons. In the winter, he said, it’s not unusual to see delivery trucks lined up to get into the Sprague terminal, as well as the Buckeye/Irving rack across the street.

But the waterfront was quiet last week. The New England had left port. The only activity at the two terminals was the occasional appearance of oil and gasoline trucks coming and going for fill-ups.

The wholesale price that oil companies pay to pick up their products is called the rack price, which reflects the cost of getting it from the refinery. The price for home delivery is always more to cover dealer expenses, and in today’s market, customers can be anxious and frustrated.

Early last week, Dodge Energy was charging a cash price of $5.44 a gallon for heating oil and a stunning $7.74 for kerosene. In Greater Portland, cash prices for heating oil were ranging from $5 to $5.60 a gallon, while kerosene ran from $5.85 to nearly $8 a gallon, according to Maineoil.com.

“People ask us all the time if the prices are going up or down,” Walsh said. “We can’t tell them, because it’s so volatile.”

Giordano, Dodge Energy’s manager, said she’s most concerned right now about K-1 kerosene. Supplies in Maine have been very low this fall, reflected by the record price. Some experts say it’s because K-1 has similar specifications as jet fuel, and demand has soared as travel picked up with the easing of pandemic restrictions. K-1 often is burned by customers with outdoors tanks, such as mobile homes, because it doesn’t gel at low temperatures.

Giordano said she is expecting K-1 availability to improve in the coming weeks, but said the current high prices and lack of supply in the overall market are unheard of.

“There is no normal anymore,” she said.

This story was updated to show the correct production capacity of the Canaport refinery.

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