Released on October 14, 2003
(Next Release on October 20, 2003)

Peak Timing
With the national media following the ups and downs of crude oil and gasoline prices and inventories, EIA has received many recent inquiries seeking to identify when a particular indicator for these markets might reach a new peak or floor level. The potential for peaks and floors in other petroleum markets generally receives less national attention, but matters a great deal to those directly affected. For those who heat their homes with oil the question of when and at what level heating oil inventories will peak heading into the upcoming winter, if in fact they have not already done so, is an issue of critical importance.

While gasoline prices affect almost everyone 16 years of age or older, heating oil prices affect a relatively small number of people. More people heat their homes using natural gas (56 percent of households) or electricity (29 percent), than heating oil (8 percent). But of those who do use heating oil, the vast majority (78 percent) live in New England and the Central Atlantic region. Winters get cold in these regions and a lot of heating oil is needed to keep these households warm over the winter. EIA released its Winter Fuel Outlook last week, showing that consumers in this region may see their heating bills increase by an average of 28 percent this winter compared to last winter, all of which is related to the retail price increase that is expected.

One key factor in heating oil prices is the inventory level. If inventories are relatively high, then there is some nearby supply immediately available should there be a cold snap, thus relieving some of the price pressure that would be there otherwise. Conversely, if inventories are relatively low, there is little flexibility in the system to respond to cold snaps, and prices typically rise more than they would were inventories at more normal levels. Thus, the higher heating oil inventories reach prior to peak winter weather, the less pressure on oil prices. Therefore, the timing of the peak inventory level can be critical, as if it occurs too early, then inventories will not build as much as they otherwise would have during the normal build season.

As stated above, the Northeast (PADDs 1A and 1B) is the critical region for heating oil. But with the New York harbor being the major port for heating oil imports and the major distribution point for heating oil for both New England and the Central Atlantic, some analysts like to zero in on heating oil inventories in the Central Atlantic region (PADD 1B) as this is the region that includes New York and New Jersey. As can be seen in the chart below, heating oil inventories in the Central Atlantic region are below the lower end of the average range for this time of year. An even larger potential concern is that inventories may have already peaked in this region, as of September 10. In the previous 11 winters (from 1993-94 through 2003-2004), Central Atlantic heating oil inventories have never peaked earlier than September 10. In fact, of the previous 11 winters (looking only at the months of September through December), the peak inventory level for heating oil in this region occurred in November or December eight times. That being said, there is still plenty of time for Central Atlantic heating oil inventories to start building again. But with cold weather expected to enter the region this week, it may take a return to much milder weather to make this possible. If, indeed, heating oil inventories have peaked for this key region, then there is little likelihood that heating oil prices will ease significantly this winter. With the near-month futures price for heating oil already at the highest recorded level ever (unadjusted for inflation), this winter’s retail heating oil prices could also reach a new “peak.”

Residential Heating Fuel Prices Rise
Residential heating oil prices increased for the period ending October 11, 2004. The average residential heating oil price grew by 7.1 cents from last week to reach 189.9 cents per gallon, an increase of 52.0 cents from this time last year. Wholesale heating oil prices gained 5.3 cents to reach 150.0 cents per gallon, an increase of 55.5 cents compared to the same period last year.

The average residential propane price increased 3.1 cents, to 160.4 cents per gallon. This was an increase of 29.9 cents over the 130.5 cents per gallon average for this same time last year. Wholesale propane prices increased 5.4 cents per gallon, from 90.7 to 96.1 cents per gallon. This was an increase of 18.4 cents from the October 13, 2003 price of 72.3 cents per gallon.

Retail Gasoline Prices Up 5.5 Cents
The U.S. average retail price for regular gasoline rose by 5.5 cents per gallon from the previous week to reach 199.3 cents per gallon as of October 11, 42.5 cents higher than this time last year. Prices were up throughout the country, with the West Coast region seeing the largest increase of 9.5 cents to 224.1 cents per gallon. Retail prices on the East Coast gained 4.4 cents to reach 196.5 cents per gallon, which is 39.3 cents higher than last year. Prices in California grew 12.9 cents to 232.7 cents per gallon, which is 52.2 cents higher than this time last year. This matches the previous historical peak (unadjusted for inflation) set on May 31, 2004.

Retail diesel fuel prices rose by 3.9 cents this week to a national average of 209.2 cents per gallon, which is 60.9 cents per gallon higher than a year ago. Retail diesel prices are reflecting not only the rise in crude oil prices, but also pressure from strong demand and high spot prices for heating oil. Prices were up throughout the country, with the Rocky Mountains seeing the largest increase of 6.7 cents to reach 213.2 cents per gallon. California prices remained the highest, rising 3.2 cents to average 232.2 cents per gallon.

Propane Inventories Continue Build
U.S. inventories of propane continued the seasonal build as they increased by 0.3 million barrels last week, reaching 68.6 million barrels as of October 8, 2004. Although October stockbuilds are not uncommon, as evidenced by the most recent 5-year period that showed three out of the five years with inventory gains in that month, the likelihood of a net gain in propane inventories during the month are typically not very high. Factors that may cause inventories to build during October include mild weather, strong supply sources, such as production and imports, and/or weak crop drying demand, although it may be too early to gauge if any of these factors will translate into higher inventories by month’s end. Regional inventories were uneven with respect to gains and losses, with East Coast and Gulf Coast inventories up, respectively, by 0.2 million barrels and 0.7 million barrels, while the Midwest and the combined Rocky Mountain/West Coast regions reported respective inventory losses of 0.3 million barrels and 0.4 million barrels. Propylene non-fuel use inventories continued flat at 2.3 million barrels last week, accounting for an unchanged 3.4 percent share of total propane/propane inventories, compared with the prior week.

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