Petroleum & Other Liquids

This Week in Petroleum

Release date: Dec. 17, 2014  |  Next release date: Dec. 24, 2014

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Lower crude oil prices further reduce expected spending on heating oil this winter

In its December Short-Term Energy Outlook (STEO), EIA expects that average heating oil expenditures by households that use oil as their primary heating fuel during the 2014-15 winter will be 27% ($632) below last winter's expenditures. Heating oil prices have declined with crude oil prices, and EIA expects U.S. heating oil prices to average $3.09 per gallon (gal) this winter, 20% lower than last winter, and 15% lower than expected in the October Winter Fuels Outlook (Table 1).

Table 1 provides a by-PADD, by-month summary of the percentage of available refining capacity expected to be out of service for maintenance during September through November.

Table 1. Winter fuel outlook forecast change from October to December
Fuel/
region



Winter
'13-14
Oct.
est.
for
winter
'14-15
Dec.
est.
for
winter
'14-15


Oct. to
Dec.
change


Oct. to
Dec.
change


Oct.
yoy %
change


Dec.
yoy %
change
Heating
Oil - U.S. Average
             
Con-
sumption
(gal)


607.3


549.4


556.5


7.1


1.3%


-9.5%


-8.4%
Price
($/gal)

3.88

3.63

3.09

-0.5

-14.9%

-6.4%

-20.2%
Expen-
diture
($)


2,354


1,992


1,722


-270.0


-13.6%


-15.4%


-26.8%

Data from the National Weather Service show that November 2014 was 18% colder than the 10-year average for the entire United States. Colder weather typically translates into increased consumption of heating fuels and higher space heating expenditures. However, because the National Weather Service still expects the balance of the winter to be milder than last year, with temperatures ranging from 11% to 16% warmer for the Northeast (PADDs 1A and 1B), Midwest, and South, total consumption is not expected to be higher.

In EIA's October Winter Fuels Outlook, heating oil consumption in the Northeast was expected to average 10% less than last year. In the December STEO, Northeast heating oil consumption was revised slightly higher, but will still average 8% lower than last winter.

The decline in expected expenditures for heating oil between EIA's October and December STEOs is tied to lower crude oil prices. Monthly average Brent crude oil prices have declined 29% from their 2014 high of $112 per barrel (bbl) in June to an average of $79/bbl in November. EIA expects Brent prices to average $78/bbl in the fourth quarter this year, compared to $109/bbl for the same time last year. In the October STEO, Brent prices were expected to average $98/bbl in fourth-quarter 2014. The $20/bbl downward revision to crude oil prices causes lower prices for petroleum products which are used as heating fuels, mainly heating oil.

Total distillate inventories in the Northeast, although well below the five-year average, are in line with inventory levels in recent years (Figure 1). In general, the global supply-demand balance for distillate fuels has created a price structure in the futures market that does not encourage building inventory even in advance of the increased demand in the winter months. Although relatively low inventory levels can contribute to price volatility, the Northeast is located in the actively traded Atlantic Basin market from which distillate fuel is imported during periods of high demand.

Consumption of heating oil for space heating is concentrated in the Northeast, where about 24% of households depend on the fuel, compared to only 5% of households nationwide. However, the expectation of reduced expenditures compared to last winter generally holds true for other fuels and regions, but does vary. About one-half of U.S. households use natural gas as their primary heating fuel, and EIA currently expects households heating with natural gas to spend an average of $31 (5%) less this winter than last winter. An additional 39% of U.S. homes rely primarily on electricity as their primary heating fuel, and those expenditures are expected to be about the same as last year. Roughly 5% of U.S. households use propane for space heating, and expenditures are expected to be 20% lower than last year in the Northeast and 33% lower in the Midwest.

The outlook for average household winter heating fuel expenditures discussed above provide a broad guide to changes compared with last winter. However, fuel expenditures for each individual household are highly dependent on local weather conditions, market size, the size and energy efficiency of individual homes and their heating equipment, and thermostat settings.

U.S. average gasoline and diesel fuel prices decrease significantly on lower oil prices

The U.S. average price for regular gasoline as of December 15, 2014, was $2.55 per gallon, down 13 cents from the previous week, and 69 cents lower than the same time last year. Prices in all regions of the country declined, with the largest drop in the Midwest, where prices fell 17 cents to $2.42 per gallon. The Rocky Mountain average fell 15 cents to $2.59 per gallon, while the West Coast and Gulf Coast prices both fell 11 cents per gallon, to $2.83 and $2.33 per gallon, respectively. The East Coast price fell 10 cents to $2.64 per gallon.

The U.S. average diesel fuel price declined 12 cents this week to $3.42 per gallon, 45 cents lower than the same time last year. Prices in all regions declined, led by the Midwest and Rocky Mountains, where prices fell 15 cents to average $3.47 and $3.50 per gallon, respectively. West Coast prices fell 12 cents to average $3.47 per gallon, while prices on the Gulf Coast fell 11 cents to average $3.33 per gallon. Prices on the East Coast declined eight cents per gallon to average $3.39, putting prices 53 cents below the same time last year, the widest decline of any region.

Propane inventories fall

U.S. propane stocks decreased by 0.8 million barrels last week to 78.4 million barrels as of December 12, 2014, 28.4 million barrels (56.9%) higher than a year ago. Gulf Coast inventories decreased by 0.9 million barrels and East Coast inventories decreased by 0.2 million barrels. Rocky Mountain/West Coast inventories decreased by 0.1 million barrels, while Midwest inventories increased by 0.4 million barrels. Propylene non-fuel-use inventories represented 4.2% of total propane inventories.

RESIDENTIAL FUEL PRICES DECREASE

As of December 15, 2014, residential heating oil prices averaged $3.14 per gallon, almost 8 cents per gallon lower than last week, and 81 cents less than last year’s price for the same week. Wholesale heating oil prices averaged $2.16 per gallon, over 10 cents per gallon lower than last week and 91 cents lower when compared to the same time last year.

Residential propane prices averaged $2.38 per gallon, less than 1 cent per gallon lower than last week, and almost 33 cents per gallon less than the price at the same time last year. The average wholesale propane price decreased nearly 7 cents this week to 67 cents per gallon, almost 97 cents per gallon lower than the December 16, 2013 price.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-0786.

Tags: Brent, crude oil, forecast, oil prices, oil/petroleum, STEO (Short-Term Energy Outlook), WTI (West Texas Intermediate)

Retail prices (dollars per gallon)

Retail price graphs
  Retail prices Change from last
  12/15/14 Week Year
Gasoline 2.554 -0.125 -0.685
Diesel 3.419 -0.116 -0.452
Heating Oil 3.142 -0.078 -0.811
Propane 2.383 -0.003 -0.329

Futures prices (dollars per gallon*)

Futures price graphs
  Futures prices Change from last
  12/12/14 Week Year
Crude oil 57.81 -8.03 -38.79
Gasoline 1.597 -0.176 -1.032
Heating oil 2.016 -0.092 -0.960
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

Stock price graphs
  Stocks Change from last
  12/12/14 Week Year
Crude oil 379.9 -0.8 7.6
Gasoline 222.0 5.3 1.5
Distillate 121.5 -0.2 5.6
Propane 78.388 -0.771 28.430