U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
OCTOBER 7, 2003

“Cautious Optimism” Describes Winter Heating Fuel Outlook

Heating fuel inventory levels are currently on track to reach normal or near-normal levels by the end of October, according to projections released today by the Energy Information Administration in its October Short-Term Energy Outlook.  Working natural gas storage, which finished the last winter season at record lows, has managed to recover to about normal at the outset of this season. Distillate and propane inventories are within their normal ranges although, regionally, some deficits relative to normal levels remain at this time.

However, U.S. oil and natural gas markets remain tight, as indicated by relatively high prices for crude oil and natural gas, low domestic stocks of crude oil and relatively low petroleum stocks throughout the industrialized countries. Because of the general tightness of domestic oil and natural gas markets, which is likely to continue throughout the winter, there would be a strong upward price risk for heating oil as well as other fuels if winter temperatures fall well below normal. 

One factor that should tend to reduce upward pressure on fuel prices is that overall demand for heating fuels is expected to decline this winter compared to last winter under the assumption of normal weather. Nationally, heating degree-days are projected to be 3 percent lower compared to last winter if normal weather conditions prevail. The decline would be about 8 percent in the Northeast, the largest market for heating oil.

Some key results in this forecast are:

• Under normal weather conditions, winter heating fuel expenditures for households are expected to be: about 8 percent lower than last winter for homes using heating oil; 5 percent higher for natural gas-heated homes; about 3 percent lower for homes using propane, and about 2 percent higher for homes using electric heat.

• The risk of higher fuel prices under a colder-than-normal winter scenario is substantial. If heating degree-days are 10 percent higher than normal, national average residential prices for heating fuels would be expected to exceed the normal weather case by approximately 6 percent for heating oil, 5 percent for natural gas, and 8 percent for propane.  Household heating expenditures would exceed the normal case by 17 percent for heating oil, 16 percent for natural gas, and 19 percent for propane.
  

• EIA's outlook for world oil prices remains near $30 per barrel (WTI) for the coming months and the winter of 2003/2004.

• OPEC’s decision to cut its production targets reduces the chances for an end-of-year stockbuild.    Even before OPEC’s decision to lower quotas, EIA had projected that the Organization for Economic Cooperation and Development (OECD) commercial inventory situation would remain tight until the end of the year.  Until these inventories are rebuilt above observed 5-year lows, which is not expected to occur until at least early 2004, West Texas Intermediate (WTI) crude oil prices should remain firm, then gradually slide to roughly $27 per barrel by late 2004.

• In 2003, total petroleum demand is projected to increase by 170,000 barrels per day from last year’s average, or by 0.9 percent, to 19.94 million barrels per day.  Demand growth for individual products, however, is expected to vary widely.  Total 2004 petroleum demand is projected to grow by 420,000 barrels per day, or 2.1 percent, to an average 20.35 million barrels per day.  All the major products (except residual fuel oil) are expected to contribute to that growth.  The acceleration reflects not only a general improvement in economic conditions but also a belated recovery in demand for jet fuel and liquefied petroleum gas from 2003.

• Natural gas demand is expected to fall by 1.1 percent in 2003 due mainly to high prices discouraging demand, particularly in the industrial and electric power sectors.  The 0.6 percent increase in consumption projected for 2004 is attributed to accelerated economic growth and generally lower prices.

• Electricity demand in 2003 is expected to remain at close to last year’s levels.  Following the relatively large increase in demand in the first quarter due to cold weather, declines in demand occurred during the second and third quarters, also driven largely by weather factors, i.e., lower cooling demand this summer than last summer.  In 2004, annual electricity demand is projected to grow by about 1.1 percent, a slower rate than might be indicated by economic growth, due partly to relatively weak heating market increases in the first quarter compared with the same period in 2003.

• Coal consumed to generate electricity for the first six months of 2003 has been 3.8 percent higher than for the same period in 2002. Coal, nuclear and natural gas fired generation are typically used to meet baseload demand (although natural gas is also the primary peaking demand fuel). Despite declines in total electricity demand and total electric sector generation, electric sector coal-fired generation and electric sector coal consumption is expected to grow in 2003.

The Short-Term Energy Outlook is published monthly on EIA’s Internet Web site to meet the public’s demand for timely energy data.  Users can view and download the analysis, tables and charts by going to the EIA Home Page at http://www.eia.doe.gov and selecting “Forecasts” from the menu.  The Internet address for direct access to the Outlook is:  http://www.eia.doe.gov/emeu/steo/pub/contents.html.

EIA Program Contact:  David Costello, 202/586-1468

EIA Press Contact:  National Energy Information Center, 202/586-8800

EIA-2003-13

File Last Modified: October 7, 2003

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