In our October Short-Term Energy Outlook: Winter Fuels Outlook, we expect that higher energy prices and a slightly colder winter compared with last year will contribute to households across the United States spending more on energy this winter (October–March) compared with the past several winters. On October 13, 2021, the Brent crude oil price (the most relevant crude oil price in determining U.S. petroleum product prices) was $83 per barrel (b), a 57% increase from last winter’s average, which contributes to the higher expected propane and heating oil retail prices. Wholesale prices of crude oil have risen because petroleum demand has increased faster than supply, leading to falling inventories (in the case of crude oil and several petroleum products) and propane inventories that have increased at slower rates than historical averages. We expect the retail price of propane in the United States will average $3.10 per gallon (gal) this winter (49% higher than last winter) and the price of heating oil will average $3.39/gal this winter (33% higher than last winter).
For a more detailed analysis of our heating fuels forecast, including analysis on natural gas and electricity, see our Winter Fuels Outlook. The Winter Fuels Outlook includes the forecast for our base case, a 10% warmer scenario, and a 10% colder scenario.
The National Oceanic and Atmospheric Administration’s (NOAA) forecast for a slightly colder winter than last year is a key input to our energy consumption forecast and contributes to our expectations for higher household energy expenditures this winter compared with last winter (Figure 1). Based on NOAA’s most recent heating degree days (HDD) forecast, our forecast assumes temperatures for the winter of 2021–22 will be slightly colder than last winter and similar to the previous 10-winter (2011–12 through 2020–21) average for most of the country. Population-weighted HDDs for the winter of 2021–22 across the United States are expected to average 3% higher than last winter and 1% higher than the previous 10-winter average.
About 5% of all U.S. households use propane as their fuel for primary space heating. We forecast expenditures for the average household that uses propane as its primary space heating fuel will be $1,805 in the Midwest, $2,012 in the Northeast, and $1,643 in the South this winter. These forecasts are $736 (69%) more in the Midwest, $645 (47%) more in the Northeast, and $494 (43%) more in the South for heating this winter compared with last winter, driven mostly by higher propane prices.
Heading into the winter heating season, propane inventory levels are low, and prices are high. As of October 13, the wholesale propane spot price at the Mont Belvieu hub near Houston was $1.42/gal, up 90 cents/gal (172%) from the same time in 2020 and at the highest level since February 2014 (Figure 2). High propane prices have been driven by strong global demand for propane, relatively flat U.S. propane production, and lower global propane production. These factors have contributed to U.S. propane inventory seasonal builds to be slower than the previous five-year (2016–2020) average (propane inventories typically build from the April-May timeframe to the September-October timeframe). U.S. propane inventories (including propylene at refineries) were 71.7 million barrels on October 8, 21% lower than the previous five-year average and 28% lower than at the same time last year.
Also contributing to low U.S. propane inventories, exports from the United States during the first seven months of 2021 were the highest on record, averaging 1.3 million barrels per day (b/d). Global propane supplies have been limited because the OPEC+ crude oil production cuts have reduced associated supply of hydrocarbon gas liquids (HGLs), including propane. U.S. propane production has also been relatively flat; production between January and July in 2021 was mostly unchanged compared with the same period in 2020. Global demand for propane, however, was greater because of rising consumption in the petrochemical sector, contributing to strong exports from the United States.
In the base temperature case, we forecast that there will be 11% more propane production at U.S. natural gas plants and refineries this winter than last winter, U.S. consumption will be 1% greater, and net exports will be 4% higher. We forecast U.S. propane production will average 2.1 million b/d this winter, 0.2 million b/d more than last winter’s average, as a result of rising natural gas production and higher crude oil refinery runs. We expect propane consumption will average 1.0 million b/d this winter, a slight increase from last winter, driven by a colder winter and higher use as a feedstock in the petrochemical sector. Increased U.S. consumption for heating and petrochemicals is partially offset by less consumption for drying grain. We forecast net exports will remain relatively high as a result of international demand.
With continued OPEC+ production increases, we expect global propane supplies to increase somewhat this winter, which could reduce demand for U.S. propane exports. These supply and demand developments contribute to our forecast that U.S. propane inventories will remain at their lowest levels in more than five years, but inventory deficits to the five-year average will likely not widen significantly further.
We expect the 4% of U.S. households that use heating oil as their primary space heating fuel will spend $1,734 on average this winter, 43% more than last winter. Customers in the Northeast rely more on heating oil than in any other region, although the share of households that rely on heating oil is decreasing. About 18% of households in this region use heating oil for space heating, down from 27% a decade ago. Higher forecast heating oil expenditures primarily reflect higher retail heating oil prices, which are driven by higher crude oil prices, low distillate inventories, and higher refining margins than last winter. In addition, we expect this winter to be colder than last winter, contributing to more consumption per household.
Northeast U.S. distillate fuel inventories (which include heating oil and diesel fuel) totaled 25.8 million barrels on October 8, which is 33% less than the previous five-year average for that week. The low inventory levels are likely to put upward pressure on heating oil prices, which we expect will average $3.39/gal this winter, 33% more than last winter. However, a number of supply options are available in the Northeast (including local refinery production, pipeline shipments from other U.S. regions, coast-wise compliant shipments from other U.S. ports, and waterborne imports from Europe), and we do not expect significant supply disruptions. Distillate inventory levels are low in other Atlantic Basin markets, however, which may require higher distillate prices in the Northeast to encourage more imports if needed.
For winter 2021–22, we forecast that distillate wholesale margins (the price difference between wholesale distillate fuel oil and Brent crude oil) will average 44 cents/gal, 14 cents/gal higher than last winter and 5 cents/gal higher than the previous five-winter (2016–17 through 2020–21) average. Higher margins lead to more U.S. distillate production in our forecast compared with last winter, and we expect total refinery and blender production of distillate fuel will average 4.6 million b/d, a 6% increase from the winter of 2020–21.
In the winter of 2021–22, we expect 5.1 million U.S. households will use heating oil as the primary fuel for space heating, down from 5.3 million last winter. As a result of fewer houses using home heating oil, U.S. demand for home heating oil is forecast to average 390,000 b/d this winter, down slightly from last winter. We expect that heating oil consumption per household, however, will increase this winter compared with last winter. For the winter of 2021–22, we forecast heating oil consumption per household will average 511 gallons, up nearly 8% compared with last winter (Figure 3). The increased consumption per household compared with last winter is driven by expectations of colder weather. In the Northeast, where space heating with heating oil is most prevalent, we expect this winter to be 4% colder than last winter.
U.S. average regular gasoline and diesel prices increase
The U.S. average regular gasoline retail price increased nearly 8 cents to $3.27 per gallon on October 11, $1.10 higher than a year ago. The East Coast and Gulf Coast prices each increased 10 cents to $3.18 and $2.94 per gallon, respectively, the Midwest price increased more than 7 cents to $3.14 per gallon, and the West Coast price increased nearly 3 cents to $3.97 per gallon. The Rocky Mountain price decreased nearly 1 cent to $3.56 per gallon.
The U.S. average diesel fuel price increased nearly 11 cents to $3.59 per gallon on October 11, $1.19 higher than a year ago. The Gulf Coast price increased more than 13 cents to $3.34 per gallon, the East Coast price increased nearly 13 cents to $3.56 per gallon, the Midwest price increased nearly 11 cents to $3.54 per gallon, the West Coast price increased more than 6 cents to $4.13 per gallon, and the Rocky Mountain price increased more than 3 cents to $3.67 per gallon.
Propane/propylene inventories decline
U.S. propane/propylene stocks decreased by 0.6 million barrels last week to 71.7 million barrels as of October 8, 2021, 18.5 million barrels (20.5%) less than the five-year (2016-2020) average inventory levels for this same time of year. East Coast and Midwest inventories decreased by 0.8 million barrels and 0.3 million barrels, respectively. Gulf Coast and Rocky Mountain/West Coast inventories increased by 0.3 million barrels and 0.2 million barrels, respectively.
Residential heating fuel prices increase
As of October 11, 2021, residential heating oil prices averaged nearly $3.29 per gallon, more than 11 cents per gallon above last week’s price and more than $1.15 per gallon higher than last year’s price at this time. Wholesale heating oil prices averaged $2.60 per gallon, almost 9 cents per gallon above last week’s price and more than $1.31 per gallon above last year’s price.
Residential propane prices averaged $2.67 per gallon, 8 cents per gallon above last week’s price and more than 89 cents per gallon above last year’s price. Wholesale propane prices averaged almost $1.62 per gallon, more than 1 cent per gallon lower than last week’s price and nearly 92 cents per gallon above last year’s price.
|Retail prices||Change from last|
|Click to chart this seriesGasoline||3.267||0.077up-arrow||1.100up-arrow|
|Click to chart this seriesDiesel||3.586||0.109up-arrow||1.191up-arrow|
|Click to chart this seriesHeating Oil||3.287||0.112up-arrow||1.151up-arrow|
|Click to chart this seriesPropane||2.670||0.080up-arrow||0.893up-arrow|
|Futures prices||Change from last|
|Click to chart this seriesCrude oil||79.35||3.47up-arrow||38.75up-arrow|
|Click to chart this seriesGasoline||2.366||0.116up-arrow||1.163up-arrow|
|Click to chart this seriesHeating oil||2.474||0.091up-arrow||1.281up-arrow|
|*Note: Crude oil price in dollars per barrel.|
|Stocks||Change from last|
|Click to chart this seriesCrude oil||427.0||6.1up-arrow||-62.1down-arrow|
|Click to chart this seriesGasoline||223.1||-2.0down-arrow||-2.0down-arrow|
|Click to chart this seriesDistillate||129.3||0.0down-arrow||-35.2down-arrow|
|Click to chart this seriesPropane||71.700||-0.588down-arrow||-28.197down-arrow|