Going Places
The day before Thanksgiving is famous for one thing: travelers going to various places to meet up with family and friends to celebrate the holiday. Some travelers will be flying to their destination, while others will be driving or even riding the rails. But there will be many people heading in one direction or another today. For those following oil markets, the question for many the day before Thanksgiving this year is: Where are prices going? Will they head south (decline) or north (increase), or even stay home (remain relatively flat)?

Oil prices have been very volatile in recent days, rising and falling by relatively large amounts seemingly every day. During the 17 trading days so far this month (through November 23), 7 days have seen the spot price for West Texas Intermediate (WTI) crude oil rise or fall by more than $1 per barrel from the previous day’s closing price, with 2 days seeing changes of more than $2 per barrel. New York heating oil spot prices have even been more volatile, with 9 days out of the 17 seeing prices change by more than 2.4 cents per gallon (equivalent to $1 per barrel). Out of those 9 days of volatile heating oil prices this month, 4 days saw prices increase (Nov. 3, 10, 17, and 19), while on 5 days they declined (Nov. 1, 2, 4, 11, and 22). This schizophrenic pattern has occurred because the market is extremely tight, with the balance between supply and demand standing on a very thin wire. When the market is as tight as it is, prices will fluctuate widely from day-to-day for many reasons, some solid, some not so solid. Some of the daily price movements have been related to the release of weekly stock data on Wednesdays (heating oil prices increased by at least 3.77 cents per gallon on each of the first three Wednesdays during November). But other movements have been based on weather forecasts or expectations of economic patterns in the not-too-distant future. Some of the large price changes have occurred because participants felt the market went too far in one direction or another the previous day.

So what should those of us that follow oil markets, particularly heating oil, expect in coming days and weeks? Even with the increase in distillate fuel inventories last week (the first increase following nine consecutive weeks of decline), they remain well below average for this time of year (see Figure 5 in the Weekly Petroleum Status Report). Reports of tight supplies in Europe and Asia do not bode well for attracting a significant increase in imports as demand reaches its peak winter level. Thus, supply will need to be augmented by inventories, which as stated above, are already low. Without a mild winter to keep demand from increasing significantly, the heating oil market in the United States should remain relatively tight, keeping pressure on prices.

Just as employees who have invested in mutual funds or stocks for their retirement years are advised not to get caught up in the day-to-day market fluctuations, those heating oil analysts looking toward the future of heating oil this winter should not get too concerned about the day-to-day volatility in heating oil prices. As winter begins in earnest next month, it appears that heating oil prices will be moving significantly one direction or another. Which way they head may indeed rest on something as basic as the weather.

Residential Heating Fuel Prices Remain Steady
Residential heating oil prices increased slightly for the period ending November 22, 2004. The average residential heating oil price increased by 0.8 cent from last week to reach 202.5 cents per gallon, an increase of 61.4 cents from this time last year. Wholesale heating oil prices increased 11.9 cents to reach 151.8 cents per gallon, an increase of 62.3 cents compared to the same period last year.

The average residential propane price decreased 0.1 cent, from 168.9 cents to 168.8 cents per gallon. This was an increase of 35.2 cents over the 133.6 cents per gallon average for this same time last year. Wholesale propane prices increased 1.1 cents per gallon, from 95.6 cents to 96.7 cents per gallon. This was a gain of 32.9 cents from the November 24, 2003 price of 63.8 cents per gallon.

Retail Gasoline Prices See Further Decreases
The U.S. average retail price for regular gasoline decreased this week by 2.1 cents per gallon from the previous week to reach 194.8 cents per gallon as of November 22, 43.6 cents higher than this time last year. This is the fourth time in the last five weeks that prices have decreased and the lowest weekly retail price since October 4. Prices were down across the country, with the West Coast region seeing the largest decrease of 3.9 cents to 218.3 cents per gallon. Retail prices on the East Coast fell 2.4 cents to 194.9 cents per gallon, which is 44.3 cents higher than last year. Prices in California fell 4.8 cents to 226.3 cents per gallon, which is 57.2 cents higher than this time last year.

Retail diesel fuel prices also continued to drop, falling by 1.6 cents to 211.6 cents per gallon. Prices were down throughout the country, with the Rocky Mountains seeing a decrease of 4.5 cents to reach 217.0 cents per gallon. California prices remained the highest, averaging 229.9 cents per gallon, despite falling 3.7 cents during the past week.

Propane Continues Above Average Stockdraw
On the heels of the prior week’s relatively strong 2.3-million-barrel draw, primary stockholders continued on the same path last week with a somewhat smaller 1.1-million-barrel draw that left U.S. inventories of propane as of November 19, 2004 at an estimated 63.7 million barrels. Since the beginning of the month, U.S. inventories have dropped by roughly 3.8 million barrels, a level above the most recent 5-year average of nearly 1.8 million barrels, but far less than prior year November stockdraws that have totaled as much as 6.7 million barrels as recently as 1997. The record stockdraw for November was 8.2 million barrels set during 1972. Regional declines included a 0.2-million-barrel stockdraw in the East Coast, followed by a 0.5-million-barrel stockdraw in the Midwest. Midwest stockdraws in recent weeks have been particularly strong, due to apparent robust crop drying demand, although last week’s somewhat more modest draw may be a signal that this trend is beginning to wind down. Gulf Coast inventories fell by only 0.2 million barrels last week, while the combined Rocky Mountain/West Coast region reported lower inventories of 0.1 million barrels during this same period. Propylene non-fuel use inventories gained 0.1 million barrels last week to account for a higher 4.1 percent of total propane/propylene inventories, compared with the prior week’s 3.9 percent share.

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