MAJOR CHARACTERISTICS
Distillate Fuel Oils
Heating oil and diesel are categorized as distillate fuel oils and rank second to gasoline in global liquid fuel consumption.
Usage
- Diesel: Powers heavy machinery, trucks, buses, trains, and automobiles, serving diverse transportation needs.
- Heating Oil: Essential for central heating in residential homes and small-scale buildings.
Sulfur Content
- Diesel vs. Heating Oil: Diesel adheres to stringent sulfur content regulations set by the US EPA (maximum 500 ppm), whereas heating oil typically contains higher sulfur levels, ranging from 2000 to 2500 ppm.
Production Breakdown
- Approximately 12 gallons of distillate are produced from a single 42-gallon barrel of crude oil. Heating oil constitutes less than 2 gallons, with the remaining 10 gallons allocated to diesel fuel.
Market Dynamics
- Diesel requires additional processing to mitigate sulfur content, incurring higher production costs compared to heating oil. Consequently, diesel fuel often commands a stable premium over heating oil prices due to their similar chemical composition.
GLOBAL SCENARIO
Consumption
- Globally, residential and commercial entities consume an estimated 10 billion gallons of heating oil annually, with the US leading in residential heating oil consumption, totaling around 4.6 billion gallons in 2008.
Refining Capacities
- The US dominates global refining capacity, accounting for approximately 20%, followed by China, the Former Soviet Union, Japan, and India.
Economic Influence
- Production emphasis on heating oil or diesel within any nation correlates with its economic structure; for instance, the US adopts a gasoline-centric economy, while India leans towards diesel.
WORLD KEROSENE MARKETS
- The Chicago Mercantile Exchange (CME), incorporating the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange, facilitates heating oil derivative markets.
INDIAN SCENARIO
High-Speed Diesel (HSD) Production and Consumption
- India primarily focuses on HSD production, reflecting its diesel-oriented economy, with demand steadily increasing over the past decade.
- Consumption surged from 12.2 billion gallons in 2004-05 to 15.9 billion gallons in 2008-09.
Production Growth
- Production witnessed a remarkable ascent from 5.3 billion gallons in 1990-91 to 19.4 billion gallons in 2008-09, marking a 265% increase, bolstered by new refineries and enhanced capacity utilization.
Market Dynamics in India
- State-owned refineries dominate the Indian market, adhering to government-mandated pricing regulations.
- Key players encompass Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL), and Reliance Industries Ltd (RIL), with RIL, a private entity, primarily focusing on exportation.
MARKET INFLUENCING FACTORS
Crude Oil Prices
- Heating oil prices exhibit a strong correlation with crude oil prices, as heating oil production costs encompass crude oil expenses, refining, distribution, and storage.
Seasonal Demand
- Demand experiences seasonal fluctuations, particularly rising during winter months (November-March) due to increased residential heating needs.
Supply-Demand Dynamics
- US consumption significantly influences global demand, accounting for around 40% of total consumption.
- Diesel demand fundamentals also impact heating oil prices, given their similar characteristics and concurrent production processes.
Global Diesel Demand
- Economic growth, especially in developing nations, and European initiatives to promote diesel vehicle usage drive worldwide diesel demand.
Storage and Production Disruptions
- Inventory levels and production interruptions due to weather or unforeseen events significantly influence trade patterns and price dynamics.
MEASUREMENT
- 1 US barrel = 42 US gallons.
- 1 US barrel = 158.98 litres.
- 1 MT = 7.33 barrels
