Winter Storm Blair Drives Fuel Demand—Can Supply Keep Up?

As colder-than-normal temperatures sweep across much of the US, fuel demand for heating oil, diesel, and jet fuel has ramped up. Margins for diesel and jet fuel have jumped to nearly three times those of gasoline, reflecting the seasonal increase in demand. However, markets are cautious, drawing comparisons to past winter storms that severely disrupted refining operations and tightened fuel supplies.

Historical data serves as a warning for fuel markets. In 2021, Winter Storm Uri crippled Gulf Coast refining operations, slashing production by several million barrels per day and leading to weeks-long outages. Similarly, Winter Storm Elliott in 2022 and Winter Storms Gerri and Heather in 2023 caused significant refinery slowdowns, highlighting the vulnerability of the energy supply chain during severe weather events.

This winter has already brought colder-than-average conditions, but so far, no storms have been severe enough to halt refining output. That could change with the arrival of Winter Storm Blair, which has already impacted travel and fuel markets. Yesterday, nearly 2,000 U.S. flights were canceled, and hazardous road conditions were reported across the Mid-Atlantic and Ohio Valley. East Coast fuel prices surged to multi-month highs, with diesel reaching its highest level in seven weeks.

Despite increased demand, refinery operations have so far remained steady, and no outages have been reported. However, traders warn that severe disruptions could lead to rapid inventory drawdowns and price spikes if conditions worsen. With several states declaring emergencies and carriers suspending operations, fuel supply concerns could weigh heavy over the next few weeks.

Adding to supply concerns, President Joe Biden recently announced a ban on new offshore oil and gas development across 625 million acres of federal waters. This ban, enacted under the Outer Continental Shelf Lands Act, affects areas in the Atlantic, Pacific, eastern Gulf of Mexico, and parts of Alaska. While it does not impact current drilling operations, it has raised questions about the future availability of domestic energy resources.

The decision aims to protect coastal areas and reduce environmental risks, referencing past incidents like the 2010 Deepwater Horizon spill. It also aligns with Biden’s conservation goal to preserve 30% of U.S. lands and waters by 2030. Environmental groups praised the move as a step toward sustainability, while industry representatives voiced concerns about potential impacts on energy security and called for a reversal.

However, legal experts note that reversing the ban could require an act of Congress due to court rulings limiting presidential authority to undo such protections. This policy debate underscores ongoing tensions between energy development and environmental conservation.

Prices at a Glance

In the short term, crude oil prices remain volatile. Recent gains, including a 40c/bbl rise in WTI to $74/bbl this morning, are fueled by concerns over tighter global supply in light of sanctions on Russia and Iran, as well as increased demand for heating fuels due to cold weather. Saudi Arabia’s decision to raise prices for Asian buyers further pressured prices.

Still, economic headwinds, including higher inflation in Europe and declining U.S. factory orders, capped price increases. Market analysts caution that oil prices are currently in overbought territory, which may lead to selling pressure and limit further gains.

Looking ahead, supply-and-demand fundamentals for 2025 are expected to remain balanced. Growth in U.S. and OPEC production could help offset slower demand, potentially providing some price relief in the longer term. However, short-term factors, including Winter Storm Blair and geopolitical developments, could create price volatility and supply concerns.