Cold Weather Heats Up the Oil Market

Heating oil demand is a key seasonal factor influencing oil prices.  Large markets for heating oil exist in Western Europe, the Northeast and Midwest US, and Northeast Asia (Korea and Japan particularly). 

The northern hemisphere Winter heating season runs from November through March with demand peaking in January.

The 2009/2010 heating oil season started out relatively mild.  The following three charts are the temperature deviations from historical norms for each of the significant heating regions for the three month period September 2009 through November 2009 (click on the charts to enlarge).

Since the beginning of December 2009 temperatures deviated from normal to become much colder in Europe and Northeast Asia (click to enlarge):

Temperatures in the US deviated quite strongly to colder than normal over the past week which lent support to oil prices and pushed the market above US$80 per barrel (click to enlarge):

The US National Weather Service (NWS) is also predicting the next 6 to 10 days (January 4 through January 10-14, 2010) to be colder than normal in the US Northeast and Midwest (click chart to enlarge):

(source of charts used in this post: US National Weather Service)

Oil Market Braces against Chill in the Air

Today was the first day cold enough in New York to require a coat. As we head into the Northern Hemisphere Winter chill it is worth putting seasonal heating in perspective.

The oil market splits the year into two seasons for heating purposes.
Winter is considered November through March. Summer is April through October.

The largest heating oil market in the World is in Western Europe followed by the US Northeast. Heating oil demand in Canada, Japan and Korea is also significant.

Winter Heating Oil Demand

(Click image to enlarge. Source: Oil 101, Table 13-2, Page 282)