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Released on December 21, 2005
(Next Release on December 29, 2005)
The Importance of Weather
Weather can be an important factor affecting the result of National Football League games in December.
Cold weather or snow can give one team an advantage over another this month, and also next month during the playoffs.
Weather can also be an important factor influencing oil product prices during the winter, not just for heating oil, but
or gasoline as well.
So far this month, in the Central Atlantic and New England regions, where most of the nation’s heating oil is consumed,
it has been somewhat colder than normal. A stretch of colder-than-normal weather over this long a period can add pressure
to crude oil prices. The cold weather increases the demand for heating oil, which ultimately requires refiners to use more
crude oil to produce more heating oil, either to meet the surge in demand or, sometime later, to help rebuild inventories that
are drawn down. As a result, crude oil prices are often bid up during a bout of colder-than-normal weather, and this latest
stretch of cold weather was no exception. From a recent low of $56.50 per barrel on November 29, the near-month futures price
of crude oil on the New York Mercantile Exchange (NYMEX) rose nearly $5 per barrel to reach $61.37 as of December 13, before
falling back to $57.81 as of December 20. In part, rising crude oil prices have boosted retail gasoline prices in many parts
of the country, with the U.S. average price for regular gasoline rising by 6.4 cents per gallon from December 5 to December 19,
according to EIA’s weekly retail price survey. A sustained increase of roughly $5 per barrel in crude oil prices would normally
translate to an increase of about 12 cents per gallon in retail gasoline prices, if all of the increase in crude oil prices was
passed through to the consumer. Thus, a further rise in retail gasoline prices might be expected, if crude oil prices were to
remain at or above the level reached on December 13 for a sustained period.
But, just as cold weather can drive prices higher during the winter, expectations of warmer weather can help drive prices lower,
and this is what has occurred over the past week. With several private forecasters predicting warmer-than-normal weather for
much of the Central Atlantic and New England regions on the horizon, some of the steam in crude oil prices has been released
and the near-month futures price on the NYMEX has dropped below $58 per barrel on December 20. Of course, weather is just one
factor influencing the market, and it will be interesting to oil market analysts to see how today’s release of EIA weekly petroleum
data through December 16 will affect oil prices. Data released earlier today showed that while crude oil inventories did continue
to increase, distillate fuel (diesel fuel and heating oil combined) inventories decreased, due in large part to a surge in demand.
The recent cold weather has helped distillate fuel demand to soar well above year-ago levels, and gasoline demand is also growing,
despite retail prices well above $2 per gallon. Where oil prices head from here may depend, in large part, on how the rest of the
winter unfolds.
Residential Heating Fuel Prices Increase Further
Residential heating oil prices rose for the period ending December 19, 2005. The average residential heating oil price
increased 2.5 cents from last week to reach 243.9 cents per gallon, an increase of 44.6 cents from this time last year.
Wholesale heating oil prices increased by 0.7 cent to reach 175.8 cents per gallon, an increase of 30.4 cents compared to the
same period last year.
The average residential propane price gained 4.0 cents, to reach 199.6 cents per gallon. The resulting price was 27.8
cents over the 171.8 cents per gallon average for this same time last year. Wholesale propane prices increased 3.5 cents per
gallon, from 115.3 cents to 118.8 cents per gallon. This was an increase of 26.2 cents from the December 20, 2004 price of 92.6
cents per gallon.
U.S. Average Retail Gasoline Price Rises for Second Week in a Row
The U.S. average retail price for regular gasoline gained 2.6 cents to 221.1 cents per gallon, rising for the second week
in a row. Price changes were mixed, with the West Coast seeing a decrease of 2.4 cents to 223.2 cents per gallon. California
prices fell 2.8 cents to 224.9 cents per gallon. The East Coast saw the largest increase of 4.4 cents to 222.5 cents per gallon,
with New England prices increasing 5.8 cents to 222.9 cents per gallon.
Retail diesel fuel prices rose 2.6 cents to reach 246.2 cents per gallon, which is 47.8 cents higher than last year. Price
changes were up throughout the country, with the East Coast seeing the largest regional increase of 4.1 cents to 249.9 cents per
gallon. Midwest prices were up 3.4 cents to 244.3 cents per gallon. West Coast prices gained only 0.5 cent to 250.5 cents per
gallon, but California prices gained 5.6 cents to 252.1 cents per gallon.
Propane Inventories Sharply Lower
U.S. inventories of propane moved sharply lower by 3.6 million barrels last week as cold weather continued to grip portions of
the Midwest and East Coast, leaving inventories as of December 16, 2005 at an estimated 64.9 million barrels. Inventories have
dropped by about 6.6 million barrels since the start of the month, or about 60 percent of the 5-year average for December. However,
even if inventories continued on this same path with sharp weekly declines through the end of the month, propane inventories
would still maintain the modest inventory cushion that was built up during October and November 2005. Regional inventories were
mostly lower with the Midwest reporting the largest weekly drop of 1.9 million barrels, followed by a 1.6-million-barrel drop in
the Gulf Coast region. While the East Coast managed to report a 0.1-million-barrel gain last week, the combined Rocky Mountain/West
Coast region showed a 0.1-million-barrel decline. Propylene non-fuel use inventories gained 0.1 million barrels last week to
account for a larger 5.1 percent share of total propane/propylene inventories, compared with the prior week’s 4.7 percent share.
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.
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