This Week In Petroleum | |
Released on October 8, 2008 Heating Oil Grievances About 7 percent of U.S. households use heating oil. While this number has been dropping steadily over the past decade, heating oil remains vital to the Northeast, where around 25 percent of households in the Middle Atlantic and about 46 percent of homes in New England use it as their primary heating fuel. Furthermore, not all U.S. households that use oil for home heating consume a similar amount. According to EIA’s 2005 Residential Consumption Survey, the households in the bottom 20 percent of heating oil consumers use less than 500 gallons per year while the households in the top 20 percent consume over 1200 gallons (Figure 1). What is causing high heating oil prices? The main driver of heating oil prices is the cost of crude oil (Figure 2). During last year’s winter season (defined as October 2007 through March 2008), West Texas Intermediate (WTI) crude oil prices and residential heating oil prices averaged $2.25 and $3.31 per gallon, respectively. In EIA’s latest Short-Term Energy Outlook (STEO), WTI crude oil prices are projected to average $2.63 per gallon, up 38 cents from last winter, and residential heating oil prices are expected to average $3.89 per gallon, up 58 cents. Heating oil prices rose even faster than crude prices over the past several years, in large part because of higher wholesale margins for distillates – a group of similar petroleum products that includes diesel fuels and fuel oils, including home heating oil. Typically, diesel fuel and heating oil wholesale prices are closely related because diesel fuel can be burned as heating oil during the winter. The heating oil wholesale margin has grown from under 23 cents per gallon during the winter of 2004-05 to over 40 cents per gallon (projected) for the coming winter. As discussed in the June 4, 2008 issue of This Week in Petroleum, global demand for diesel has grown faster than that for other products leading to tightness in the global balance between distillate supply and demand as well as higher margins. In spite of higher prices, heating oil consumption is also likely to grow this winter. The National Oceanic and Atmospheric Administration’s (NOAA) forecast for the 2008-09 winter predicts slightly colder weather than last year (more heating-degree days) for most of the country, including the Northeast. If this forecast holds and heating oil consumers choose not to lower their thermostats, consumption will be higher than last year. Steeper prices combined with colder weather could put a serious dent in many household budgets. How much will heating oil cost? EIA forecasts that the average cost for a household using heating oil as its primary heating fuel will be $2,388 this winter, an increase of $449 or 23 percent over last winter (Table 1). Total heating costs will vary significantly between regions and according to consumption levels for various households.
How could these forecasts change? Crude oil prices are likely to continue as the primary driver of heating oil prices. If the world experiences a period of weak economic growth, crude oil supply could potentially outpace demand and drive down prices this winter. Warmer-than-expected weather would also provide some relief by reducing consumption, prices, and, therefore, total household expenditures. Additionally, consumers always have the option of taking matters into their own hands by weather-stripping and caulking to reduce the infiltration of cold air into their homes and by choosing slightly colder thermostat settings over the coming months. These actions might be more effective in lowering their heating expenses and, consequently, their frustrations than airing grievances during Festivus.Residential Heating Fuel Price Survey Begins For The 2008/09 Season Residential propane prices hit 265.9 cents per gallon on average, a new Winter Fuels Survey record high, and 53.4 cents higher than one year ago. Wholesale propane prices averaged 144.4 cents per gallon as of October 6. This was an increase of 1.4 cents from the same period last year. U.S. Average Gasoline Price Falls Below $3.50 The U.S. average diesel price dropped 8.4 cents to 387.5 cents per gallon. Prices settled below the $4 mark in all major regions of the country for the first time since March 10. The price on the East Coast fell 9.2 cents to 392.8 cents per gallon, although it is still 89.7 cents higher than last year. Dropping 7.8 cents, the price in the Midwest fell to 385.8 cents per gallon. The average price in the Gulf Coast dipped 8.6 cents to 384.3 cents per gallon, remaining the lowest of any region. The price in the Rocky Mountains decreased 5.8 cents to 388.6 cents per gallon. The average price on the West Coast declined 9.4 cents to 384.7 cents per gallon. In California, the average also moved down by 9.4 cents to 386.9 cents per gallon. Propane Inventories Up Sharply Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||