Released on February 8, 2006
(Next Release on February 15, 2006)

Hello, Winter
As if on cue, with the opening ceremony for the Winter Olympics just two days away, winter weather has returned to many parts of the country after a long absence. Following the warmest weather on record in January in the United States, temperatures have recently returned to normal and below-normal in many regions of the country. But with only a few weeks left in the heart of winter, will the drop in temperature, even if it persists, dramatically affect heating oil prices?

While a severe, lengthy cold snap could have an impact on heating oil prices, there are a number of factors that would tend to limit any upward price movement. First, the record warmth in January enabled total distillate fuel inventories (diesel fuel and heating oil combined) to increase when they typically decline. Between December 30, 2005 and February 3, 2006, total distillate fuel inventories increased by 7.1 million barrels, compared to the most recent 5-year monthly average for January in which they declined by 9.5 million barrels. The increase in inventories seen over the last five weeks is the largest increase in January since 1990! Even heating oil inventories (greater than 500 ppm sulfur distillate fuel) rose by 3.8 million barrels, compared to the 5-year average for January of a decline of 4.0 million barrels. Since 1993, when EIA began collecting data on heating oil inventories, the only other year which saw a similar increase in January was 2001, when inventories increased by 3.7 million barrels.

This additional cushion has pushed distillate fuel inventories well above the average range for this time of year, increasing the buffer available to respond to a severe cold snap. This increased buffer is one of the reasons why spot and futures prices for heating oil have dropped fairly dramatically since January 30. Between January 30 and February 7, the spot price for heating oil in New York has plummeted by over 20 cents per gallon, while the spot price on the Gulf Coast has dropped by over 18 cents per gallon over this same period. (The near-month futures price for heating oil has also fallen by about 14 cents per gallon over the past seven trading days.) Even if prices begin to rise due to the colder temperatures, they will have to rise substantially just to get back to the price levels seen at the end of January.

Thus, while heating oil prices are still expected to be greater than last year, which will lead to higher heating oil bills, they are likely not to reach levels that had previously been forecasted, largely due to the record warm temperatures in January in the United States, even as parts of Europe and Asia were experiencing continued colder-than-normal temperatures. Winter weather may have returned just in time to help put us in the mood to watch the Winter Olympics, but probably too late to cause any major increase in residential heating oil prices.

U.S. Average Retail Gasoline Prices Drop 1.5 Cents
The U.S. average retail price for regular gasoline was down 1.5 cents to 234.2 cents per gallon as of February 6, which is 43.3 cents higher than last year. Prices were mixed throughout the country, with the East Coast, Midwest, and Gulf Coast all seeing price decreases. The Midwest had the largest regional price decrease of 3.4 cents to 228.0 cents per gallon. West Coast prices were up 2.2 cents to 247.8 cents per gallon, with California prices gaining 3.1 cents to 254.4 cents per gallon.

Retail diesel fuel prices increased by 1.0 cent to reach 249.9 cents per gallon as of February 6, which is 51.6 cents higher than last year. Prices were up throughout the country, with the largest price increase occurring in the Rocky Mountains, gaining 2.9 cents to 250.3 cents per gallon. West Coast prices rose 0.5 cent to 264.5 cents per gallon. East Coast prices increased 0.6 cent to 253.6 cents per gallon, but New England prices fell 0.2 cent to 265.9 cents per gallon.

Residential Heating Fuel Prices Continue to Decrease
Residential heating oil prices decreased for the period ending February 6, 2006. The average residential heating oil price fell by 1.4 cents last week to reach 244.7 cents per gallon, an increase of 45.7 cents from this time last year. Wholesale heating oil prices decreased by 4.5 cents to reach 179.0 cents per gallon, an increase of 44.5 cents compared to the same period last year.

The average residential propane price decreased 0.3 cent, to reach 200.0 cents per gallon. This was an increase of 27.7 cents compared to the 172.3 cents per gallon average for this same time last year. Wholesale propane prices decreased 0.2 cent per gallon, from 100.9 cents to 100.7 cents per gallon. This was an increase of 19.6 cents from the February 7, 2005 price of 81.1 cents per gallon.

January Propane Stockdraw Below Average
Following the warmest January on record, U.S. inventories of propane posted the lowest stockdraw for this month in 8 years, falling about 10.3 million barrels to an estimated 47.3 million barrels as of February 3, 2006. The average January stockdraw over the most recent 5-year period was 14.3 million barrels. Contributing to the overall low January stockdraw was last week’s modest 1.0-million-barrel draw that left total inventories of propane at their highest level for this time of year since 2002. Moreover, propane production gains, a reversal of the recent downward trend in this supply source, coupled with sharply higher imports, also contributed to mute the weekly stockdraw.

Inventories on the East Coast and the combined Rocky Mountain/West Coast regions posted respective gains of 0.7 million barrels and 0.1-million-barrel. While in the Midwest and Gulf Coast regions, inventories moved down by 0.8 million barrels and 1.0 million barrels, respectively. Propylene non-fuel use inventories also gained last week to 4.4 million barrels, a level that accounted for a 9.3 percent share of total propane/propylene inventories, compared with the prior week’s 8.7 percent share.

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