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. Last Updated: 07/27/2016

European Hunger for Russian Gas Hurts U.S.

NEW YORK -- U.S. home heating oil prices are in danger of rising sharply this winter as Europe's increasingly hungry motor-fuel markets compete for supply from Russia, analysts said Thursday.

European demand for diesel, produced by further refining heating oil, has jumped as much as 5 percent this year as drivers in France, Germany and Italy use it as an alternative to gasoline.

While the trend has boosted Europe's capacity to export its surplus gasoline to the United States, keeping pump prices in check, it is expected to crimp U.S. ability to find reliable heating oil imports, particularly from Russia, in the event of a supply crunch.

"In the past, it has been Russia that gets the U.S. out of a supply jam when the winter gets cold and the supplies get thin," said Aaron Brady, analyst at Energy Security Analysis Inc. "But the increase in European diesel demand will likely mean that Europe takes a larger and larger share of Russia's exports, particularly if the trend continues."

Russia has provided only 2.2 percent of total U.S. distillate imports during the first eight months of 2002 after averaging above 7 percent for the previous three years, leading to increased U.S. dependence on Canadian and Venezuelan supply, according to the U.S. Energy Department.

In the meantime, European exports of distillates to the United States have dropped nearly to zero, the adminstration said.

The prospect of reduced supply from Russia is particularly worrying for consumers as U.S. spare inventories of distillates run roughly 10 percent below the five-year average just ahead of an expected cooler winter heating season and as oil markets fret over the possibility of war with Iraq.

The Energy Department already predicted in early October that U.S. consumers would pay 45 percent more this winter for heating oil, with the average household forecast to spend $934 on heating oil compared with $643 last year.

"Under normal weather assumptions, winter heating bills for residential consumers could average from $100 to $300 higher than last winter," the department's energy information administration said.

Analysts say the trend of increased competition for Russian supply is likely to continue as shifting consumer preferences in European have made diesel the motor fuel of choice.

"European diesel demand is rising 3 percent a year, which means a lot of gas oil is getting consumed here instead of being shipped to the United States," said Jay Saunders, analyst for Deutsche Bank in London.

"Europe is net short of gas oil and will be shorter in coming years," said Damien Kennaby, downstream analyst at Cambridge Energy Research in Paris.

Shipping sources said a meagre 150,000 metric tons of Russian gas oil, or heating oil, made the journey to U.S. shores in September. In October, some 270,000 tons were shipped transatlantic, of which a third was bound for South America.

"There hasn't been a lot of gas oil moving and nothing from the Mediterranean," one said, noting the shipments were tiny as compared to the huge volumes that usually sail to the United States at this time of the year.