Released on February 2, 2005
(Next Release on February 9, 2005)

The First Sign of Spring
Earlier today, Punxsutawney Phil emerged from his hole in Pennsylvania and saw his shadow, thus signaling, potentially, six more weeks of winter. While Punxsutawney Phil is a famous harbinger of spring, some people also look for other signs of its early arrival. For some it will be the first time they see a robin, for others the first bud seen on a tree, and for sports fans it will be the sound of baseballs hitting gloves as pitchers and catchers report to spring training. But for oil market analysts, one sign that spring may be coming soon is when the spot price of gasoline rises above that of heating oil. Looking at spot prices for both of these products in recent days, the spot price of gasoline may not be too far away from surpassing that for heating oil.

Of course, spot heating oil prices are not always above gasoline prices during the winter, but this year, as shown in the chart above, this has been the case since September 21. Concerns about the adequacy of heating oil supplies in the first half of winter, and cold weather in recent weeks, have kept spot heating oil prices above gasoline, at least in the New York harbor, the key trading center for heating oil. Additionally, distillate fuel inventories in the United States have been near the bottom end of the average range for most of the winter, while gasoline inventories have been near the upper end of the average range. This has increased the flexibility of gasoline markets to adjust to changing conditions, while limiting, to some extent, the same for heating oil. The combination of inventory patterns and weather patterns this winter led to spot heating oil prices being higher than spot gasoline prices for 91 consecutive trading days through February 1, with the possibility of more in the future. A string of that magnitude has only been achieved twice before since spot prices have been monitored (1986). The winter of 1987/88 saw spot heating oil prices exceed spot gasoline prices for 107 consecutive trading days, while the record was during the winter of 1993/94 when this occurred for 150 consecutive trading days.

But recently, it appear that this year’s string may soon end, as the differential between spot heating oil and gasoline prices has dropped from more than 10 cents per gallon as recently as January 25 to as little as 3 cents per gallon the last two trading days (January 31 and February 1). This reflects a shift in the market away from heating oil and towards gasoline. While meteorologically, winter is far from over, for heating oil markets, supplies appear to be sufficient to keep the risk of major price spikes (unrelated to changes in crude oil prices) reasonably low for the rest of the winter. As February rolls along, the market is likely to gradually increase its focus on gasoline markets. For now, heating oil markets are still being closely watched by oil analysts and traders, but over the next few days or weeks, as robins and tree buds appear, and as spring training begins in Florida and Arizona, we are likely to see spot gasoline prices come to the fore once again, letting oil market followers in on the secret that spring is not too far away.

U.S. Average Retail Gasoline Up Almost 6 Cents
The U.S. average retail price for regular gasoline increased this week by 5.8 cents per gallon from the previous week to reach 191.1 cents per gallon as of January 31, 29.5 cents higher than this time last year. This is the fourth week in a row that prices have risen, and the first time since December 6 that prices have been this high. Prices were up throughout the country, with the West Coast and Midwest seeing the largest gains of 6.7 cents to 198.5 cents per gallon and 6.6 cents to 191.3 cents per gallon, respectively. Prices in California gained 7.5 cents to 203.4 cents per gallon. Retail prices on the East Coast gained 5.1 cents to 191.1 cents per gallon, which is 27.8 cents higher than last year. New England prices gained 7.0 cents to 193.0 cents per gallon.

Retail diesel fuel prices rose 3.3 cents last week to 199.2 cents per gallon. This is the third week in a row that prices have increased. Prices were up throughout the country, with the Rocky Mountains seeing the largest regional increase of 6.2 cents to 194.6 cents per gallon. Prices in the Midwest gained 2.6 cents to 195.4 cents per gallon. East Coast prices gained 3.4 cents to reach 204.8 cents per gallon, while prices in New England stayed the highest in the nation, rising 4.5 cents to 222.5 cents per gallon. The average price in California increased by 5.8 cents to 212.6 cents per gallon, which is 43.0 cents higher than this time last year.

Residential Heating Oil Prices Rise While Propane Prices Edge Downward
Residential heating oil prices increased for the period ending January 31, 2005. The average residential heating oil price increased by 2.8 cents from last week to reach 201.8 cents per gallon, an increase of 39.3 cents from this time last year. Wholesale heating oil prices decreased 3.1 cents to reach 139.7 cents per gallon, an increase of 42.9 cents compared to the same period last year.

The average residential propane price decreased 0.4 cent, from 173.1 cents to 172.7 cents per gallon. This was an increase of 19.0 cents over the 153.7 cents per gallon average for this same time last year. Wholesale propane prices decreased 1.0 cent per gallon, from 83.1 cents to 82.1 cents per gallon, a gain of 6.9 cents compared to the same period last year.

Propane Stockdraw Near Average for January
Despite what appeared to be a rather chilly month, January temperatures in the major propane heating regions in the East Coast and Midwest were actually about normal during this period. Following relatively modest stockdraws during the first half of the month, freezing temperatures and near-record snowfalls in some areas of the nation caused much sharper stock draws during the second half. However, the overall January stockdraw of 13.6 million barrels fell slightly short of the 14.5 million barrels averaged during the most recent 5-year period. With last week’s 3.2-million-barrel stockdraw, U.S. inventories of propane measured an estimated 41.8 million barrels as of January 28, 2005, a level 6.1 million barrels above the same week last year. Regional inventories were seasonally lower, with the East Coast showing a decline of 0.3 million barrels, followed by the Midwest and Gulf Coast regions that reported declines of 1.6 million barrels and 1.0 million barrels, respectively. The combined Rocky Mountain/West Coast regions posted a 0.1-million-barrel drop during this same period. Propylene non-fuel use inventories reported a small 0.1-million-barrel gain last week that boosted its share of total propane/propylene inventories to 8.6 percent from the prior week’s share of 7.8 percent.

Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.