A Temporary Phenomenon or Here to Stay?
For the first time ever in the National Football League, a team has won in consecutive weeks against undefeated opponents that had at least 6 victories. The Pittsburgh Steelers were victorious against the previously undefeated New England Patriots on Oct. 31 and the previously undefeated Philadelphia Eagles the next week. The question now in football circles is whether the Steelers are a legitimate Super Bowl contender (they weren’t seen as such before the season) or whether they are just riding a temporary wave and will return to a level more consistent with previous expectations in the not too distant future. Likewise, after reaching an historic peak of more than $55 per barrel in late October, the price for West Texas Intermediate crude oil has fallen sharply in recent days and is currently below $48 per barrel. Will the recent drop in crude oil spot prices end up being a temporary phenomenon, or is it the beginning of a downward trend? And more importantly for heating oil and propane consumers this winter, will current crude oil prices translate into lower residential heating oil and propane prices?

While it is difficult to answer these questions with 100% confidence, it does appear that heating oil and propane retail prices might be lower in the near term, if rising crude oil inventories continue to ease supply fears and the recent above-normal temperatures in the major heating regions in the East Coast and Midwest linger for a sustained period. However, beyond some period of possibly lower prices that could last anywhere from a few days to several weeks, the expectations for higher prices for heating oil and propane later this winter are potentially greater when considering the longer-term fundamentals that affect these prices. For instance, residential heating oil and propane prices typically show far less volatility than spot or wholesale prices for these fuels over the winter heating season. Thus, any temporary corrections to spot or wholesale prices for these fuels will not necessarily pass through to significantly lower or higher residential prices. Moreover, price trends in recent years show that residential heating oil and propane prices generally peak during the coldest months of January or February, so the question of whether retail prices will remain below these anticipated peaks is an open one. Although market speculation is thought to have had some level of influence in recent price volatility for both rising and falling crude oil prices, other factors have probably contributed more to the current downward trend in crude oil prices seen since late October. Higher output by the Organization of the Petroleum Exporting Countries (OPEC) and the return of a large portion of Gulf of Mexico production from the effects of Hurricane Ivan have combined to help replenish low U.S. crude oil inventories in recent weeks. This development will allow refiners, including some that are just now returning from pre-winter maintenance programs, an adequate supply of crude oil needed to significantly boost heating oil inventories in time for the approaching winter heating season. Nevertheless, at least twice this year, crude oil markets have witnessed periods of lower prices that were subsequently followed by even higher prices in later weeks, indicating that these periods were essentially just a sequence in the longer-term trend of rising crude oil prices. And with the first real blast of Canadian weather coming into the Northeast (the key heating oil region) this week, the near-term path of spot heating oil prices may even begin to rise again. While the Steelers may be the real deal this year, one might not want to get too carried away in thinking that the lower spot heating oil and propane prices currently seen will remain throughout the entire winter season.

Residential Heating Fuel Prices See Some Relief
Residential heating oil prices decreased for the period ending November 8, 2004. The average residential heating oil price decreased by 3.2 cents from last week to reach 202.8 cents per gallon, an increase of 64.2 cents from this time last year. Wholesale heating oil prices decreased 9.5 cents to reach 140.4 cents per gallon, an increase of 52.9 cents from the November 10, 2003 price of 87.5 cents per gallon.

The average residential propane price increased 0.7 cent, to 168.9 cents per gallon. This was an increase of 36.2 cents over the 132.7 cents per gallon average for this same time last year. Wholesale propane prices decreased 2.5 cents per gallon, from 100.8 to 98.3 cents per gallon. This was a gain of 34.4 cents from the November 10, 2003 price of 63.9 cents per gallon.

Retail Gasoline Prices Fall by 3 Cents
The U.S. average retail price for regular gasoline decreased this week by 3.3 cents per gallon from the previous week to reach 200.1 cents per gallon as of November 8, 49.7 cents higher than this time last year. This is the second time in three weeks that prices have decreased. Prices were down across the country, with the Midwest region seeing the largest decrease of 6.0 cents to 192.4 cents per gallon. Retail prices on the East Coast fell 1.9 cents to 199.7 cents per gallon, which is 48.6 cents higher than last year. Prices in California fell 2.8 cents to 234.1 cents per gallon, which is 65.6 cents higher than this time last year.

Retail diesel fuel prices also dropped, falling by 4.3 cents to 216.3 cents per gallon. Prices were down throughout the country, with the West Coast seeing a decrease of 4.6 cents to reach 232.4 cents per gallon. California prices remained the highest, averaging 238.6 cents per gallon, despite falling 4.5 cents during the past week.

Propane Inventories Post Modest Weekly Draw
Despite temperatures that were slightly above normal in the major propane-consuming regions in the East Coast and Midwest during the first week of November, primary inventories of propane showed a modest net loss of 0.4 million barrels, ending the week of November 5, 2004 at an estimated 67.1 million barrels. While weather may not be a major factor yet in gauging the level of propane demand this early in the season, the movement of propane out of primary inventories this time of year in all likelihood reflects the normal shift of propane from primary to secondary (propane retail dealers) and tertiary (end-use customers) inventories prior to the arrival of more severe temperatures. However, these inventory shifts are not always consistent across all regions on any given week as witnessed last week. For instance, while propane inventories remained unchanged in the East Coast, Midwest inventories reported a stock draw measuring 0.7 million barrels at the same time Gulf Coast inventories reported a stockbuild of 0.3 million barrels. Furthermore, propane inventories in the combined Rocky Mountain/West Coast regions posted a modest 0.1-million-barrel decline during this same period. Propylene non-fuel use inventories jumped by 0.3 million barrels last week to account for a larger 3.9 percent share of total propane/propylene inventories, compared with the prior week’s 3.4 percent share.