The Energy Policy and Conservation Act, as amended, sets conditions for the release of the Northeast Home Heating Oil Reserve. The Secretary of Energy has the authority to sell, exchange, or otherwise dispose of petroleum distillate from the Reserve in order to maintain the quality or quantity of the petroleum distillate or to maintain the operational capability of the Reserve.
Emergency release of the Reserve is at the President's discretion. The President may make the requisite finding of a "severe energy supply interruption" for the sale of product under two conditions:
- if there is "a dislocation in the heating oil market," or
- a circumstance exists (other than the defined dislocation) that is a regional supply shortage of significant scope and duration and the Reserve's release would significantly reduce its adverse impact.
The law deems a "dislocation" to have occurred only when -
- "The price differential between crude oil...and No. 2 heating oil...increases by more than 60% over its five year rolling average for the months of mid-October through March (considered as a heating season average)."
- The price differential continues to increase during the most recent week for which price information is available."
To establish a calculation methodology using available data sources, the Energy Information Administration has translated this legal definition of a dislocation into the following observable factors:
- The price differential between residential No. 2 heating oil in the Northeast and crude oil must be more than 60 percent greater than its 5-year rolling average for that month;
- The price differential must continue to exceed the 60-percent threshold for two consecutive weekly (Monday) observations (thus satisfying the 7-day requirement in the law); and
- The price differential must be increasing as of the most recent observation.
The weekly report for the current heating oil season shows the differential levels required to exceed the 60-percent threshold. Historical reports are available here.
Northeast Home Heating Oil Reserve Trigger Mechanism (2015-2016 Heating Oil Season)
|(Cents per Gallon Except Where Noted)|
|Residential Heating Oil Price||Average Brent Spot Price (Previous Week)||Heating Oil/Crude Oil Spread||5-Year Average Spread||Current vs. Average Spread||Spread Required for Trigger|
|Week||PADD 1A||PADD 1B||Average PADD 1A/1B||Dollars per Barrel||Cents per Gallon|
Source: EIA-877 survey, U.S. Energy Information Administration.