The federal government plans to release up to 315,000 barrels from the Northeast Home Heating Oil Reserve in an effort to tackle high prices amid a global energy crunch triggered by the U.S. war against Iran.
Oil will be auctioned off starting next week, with deliveries to be completed by mid-November, according to the U.S. Department of Energy.
This is only the second emergency release from the 1-million-barrel stockpile in its 26-year history and the only time it has been used to affect pricing.
"The Trump administration is doing everything in our power to lower energy costs for the American people," Energy Secretary Chris Wright said in a press release.
"Of course, this is a temporary measure to solve a temporary supply disruption," Wright added.
Some analysts predict the release may not lower prices in the near-term but could help prevent larger increases this winter.
"This will not immediately end up in household oil tanks. This will really replenish what has been a very tight reserve system here in New England," said Maine State Chamber of Commerce President and former state energy official Patrick Woodcock.
"We really have historically low supplies in the region, so this will be transferred into the storage tanks, and I do think will stabilize the market," Woodcock added.
Roughly half of Maine households rely on fuel oil for heating, more than any other U.S. state. New England is the most heating oil dependent region in the country.
Per-gallon prices have surged following President Donald Trump's decision to go to war against Iran. That conflict triggered a global energy crisis after that country closed the Strait of Hormuz, a critical pathway for petroleum products from the Persian Gulf to global markets.
In Maine, the average price last week was $5.97 per gallon, just shy of a record set in September and up about 80% from the year before.
Tom Kloza, an analyst at Gulf Oil in Massachusetts, said oil from the reserve will be auctioned on an exchange, with dealers agreeing to deliver the same or more product back to the reserve in the future.
Near-term heating oil prices look lower, so now is a good time to build up stocks to head off much higher costs later this winter, Kloza added. Still, the impact of the sale may not be that significant, he said.
"One thing I would stress is that this is a very, very small volume," Kloza said.
"We're talking about a worldwide market for diesel and heating oil that's around 29 million barrels a day. We're talking about U.S. demand that is close to 4 million barrels a day. So, when you're talking about 300,000 barrels, you're really talking about something which is just a pebble in the ocean so to speak."
Maine Senators Republican Susan Collins and independent Angus King took credit for encouraging the exchange of oil in a press release Wednesday. The two senators wrote to Secretary Wright in September urging the administration to do more to deal with rising fuel costs.
“Approximately half of Maine households rely on fuel oil to heat their homes, and I have repeatedly urged the administration to use every tool to increase supply and lower energy prices," Collins said in a statement.
A spokesperson for Senator Collins said the 315,000 barrels amounted to about 13% of New England's current supply of fuel oil and that companies will have until 2027 to replace exchanged barrels.
Collins is in a tough reelection campaign against Democrat Troy Jackson where the cost of living, including ballooning heating oil costs, have become a key issue.
Maine Governor Janet Mills, in a statement, said she hoped that additional fuel oil could help moderate prices, but that it would not provide lasting relief.
"I also want to be clear: while we are hopeful this decision will ease prices for Maine people in the near-term, it will not solve the long-term problem driving up costs — the President’s war — and Maine people deserve long-term solutions that bring down costs, not just temporary relief from a crisis of the President’s own making," Mills said.
The reserve has only ever been tapped for an emergency once before, when 120,000 barrels were drawn down in the aftermath of Hurricane Sandy in 2012.
