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

Which Way to Vote?
Just as Americans appear to be split in terms of which political party they prefer, oil market analysts are split on which way they think oil prices will head over the next few months. Some analysts think that oil prices will remain below $60 per barrel, while others expect prices to rise. EIA’s latest Short-Term Energy Outlook, released yesterday, leans towards the view that oil prices are more likely than not to rise modestly over the next few months.

Those analysts who expect the price of West Texas Intermediate (WTI) to fall for the next few months generally expect the U.S. economy to continue to slow, thus keeping increases in oil demand lower than they would be otherwise. Additionally, these analysts expect growth in non-OPEC oil supply to outpace limited oil demand growth, thus keeping price pressure low, even with a cut in OPEC production. Relatively high oil inventories in countries belonging to the Organization for Economic Cooperation and Development (OECD) are also seen as contributing to near-term supplies sufficiently to keep oil prices from rising significantly. This sentiment has been prevalent in oil markets lately, which has helped to keep WTI near-month futures prices at or below $60 for most of the last few weeks.

EIA and other analysts who expect oil prices to firm take a different view when looking at the global oil market situation. Due to project slippage, geopolitical uncertainty, and high rates of production decline in mature producing regions, EIA projects non-OPEC production growth to only partially meet anticipated oil demand growth, which pressures OPEC to increase production in 2007 or leads to declines in oil inventories to meet demand. While EIA does not expect OPEC to trim the full 1.2 million barrels per day in production that they announced on October 20, the cut should be sufficient to result in a higher-than-usual drawdown in crude oil inventories during the fourth quarter of 2006. Already, U.S. petroleum data released earlier today show that gasoline inventories, which had been well above the normal range just a few weeks ago, have dropped back into the normal range, thus reflecting that some of the inventory surplus is being worked off. Total U.S. petroleum inventories (excluding those in the Strategic Petroleum Reserve) have dropped by 27 million barrels over the last four weeks, or nearly 1 million barrels per day, even before any OPEC cuts would have had any effect. If oil demand growth over the next several months continues in line with EIA’s projection, oil inventories are likely to continue to drop more rapidly than their typical seasonal pattern.

Of course, there are many factors that could affect any forecast for the next few months, with weather being perhaps the most uncertain. Weather can have a large impact on oil demand during the winter, both positively and negatively. Another uncertainty involves the actual level of OPEC cuts. Whether WTI prices firm in the coming months or remain at or below $60 per barrel will depend on many factors. Our assessment, as outlined in the Short-Term Energy Outlook, is that prices are more likely to rise than fall.

Residential Heating Oil Prices Show Decrease, Propane Holds Steady
Residential heating oil prices decreased for the period ending November 6, 2006. The average residential heating oil price fell 1.2 cents last week to reach 237.0 cents per gallon, a decrease of 13.8 cents from this time last year. Wholesale heating oil prices decreased by 2.2 cents to reach 173.7 cents per gallon, a decrease of 11.6 cents compared to the same period last year.

The average residential propane price increased by 0.4 cent, to reach 193.8 cents per gallon. This was a decrease of 1.7 cents compared to the 195.5 cents per gallon average for this same time last year. Wholesale propane prices decreased by 3.0 cents per gallon, from 102.0 to 99.0 cents per gallon. This was a decrease of 13.5 cents from the November 7, 2005 price of 112.5 cents per gallon.

U.S. Average Retail Gasoline and Diesel Prices Decline
The U.S. average retail price for regular gasoline fell to its lowest price this year, with prices decreasing 1.8 cents to 220.0 cents per gallon as of November 6. Prices are 17.6 cents per gallon lower than at this time last year. East Coast prices fell 1.5 cents to 217.0 cents per gallon. In the Midwest, prices fell 0.9 cent to 218.7 cents per gallon. Gulf Coast prices fell 2.2 cents to 208.0 cents per gallon. The Rocky Mountains saw the largest regional decrease, with prices slipping 3.6 cents to 227.4 cents per gallon. West Coast prices were down 3.3 cents per gallon to 238.1 cents per gallon, 24.2 cents lower than at this time last year.

Retail diesel fuel prices were also down this week, with prices falling 1.1 cents to 250.6 cents per gallon, 19.2 cents less than at this time last year. East Coast prices fell 2.2 cents to 250.8 cents per gallon and Midwest prices fell 0.8 cent, to 249.3 cents per gallon. The Gulf Coast saw the average price drop by 1.3 cents to 244.9 cents per gallon. There was no change in the Rocky Mountains, with prices holding at 257.7 cents per gallon. The West Coast was the only area to see an increase, with prices rising 0.4 cent to 260.6 cents per gallon.

Propane Inventories Post Weekly Decline
Following several weeks of relatively flat inventory activity, U.S. propane inventories broke from this trend and posted a decline of about 0.7 million barrels last week, falling to an estimated 71.5 million barrels as of November 3, 2006. Imports continued strong last week but did not stem the outflow of propane from inventories. This was particularly acute in the Midwest where inventories showed the largest weekly decline of nearly 1.0 million barrels against a strong tide of imports from Canada. Elsewhere, inventory losses were limited to just 0.1 million barrels in the Gulf Coast, while the East Coast and the combined Rocky Mountain/West Coast regions reported gains of 0.3 million barrels and less than 0.1 million barrels, respectively. Propylene non-fuel use inventories rose last week and accounted for 5.1 percent of total propane/propylene inventories, compared with the prior week’s 4.8 percent share.

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