Released on February 14, 2007
(Next Release on February 22, 2007)

Treading Carefully
This morning, the entire Washington, D.C. area was covered in snow and ice, making transportation a slippery affair, both on roads and sidewalks. Given the treacherous conditions, the Federal Government suspended many operations earlier than normal on Tuesday, began operations on Wednesday later than normal, and also allowed employees to stay home on Wednesday by taking leave without prior approval. Nevertheless, the EIA released both its weekly petroleum supply data and this issue of This Week In Petroleum on time. To insure timely dissemination of these publications, EIA had contingency plans for various scenarios. So, too, should contingency plans be made when attempting to forecast oil markets. With regard to the near-term, many factors can affect oil prices, and, given relatively tight supply and demand conditions, any unforeseen change can have a dramatic impact. This is why most analysts tread carefully when making oil projections.

Some analysts were surprised by the over $10 drop in the near-month crude oil future price between the end of 2006 and mid-January 2007, just as some analysts were surprised by the subsequent increase of more than $9 between mid-January and the end of last week. Ask five different oil analysts today what the price will be on the last day of this month, just two weeks from now, and it wouldn’t be too surprising to get five very different answers. But for most oil market watchers, trying to forecast the exact price is not as important as understanding the factors that could influence prices. Understanding the key factors helps analysts adjust their projections as factors change.

For most of this winter, EIA has stated that weather would be a key factor influencing near-term oil prices. It has always been our expectation that once weather turned cold, particularly in the northeast portion of the country where most of the nation’s heating oil is consumed, prices would likely rise. The unusually warm start to this winter kept oil demand depressed below expected levels, resulting in additional inventory cushion and lower prices. But, as expected, once winter weather finally made an appearance along the East Coast, oil demand increased, as did oil prices.

So, what is the story for the next few weeks? Through the rest of this month, weather will likely remain a key factor affecting oil prices. It would not be surprising to see temperature and oil prices working in opposite directions. If temperatures remain colder-than-normal, then oil prices could rise even further, especially if OPEC member countries maintain or increase their production cuts. Should temperatures begin to rise significantly and remain above seasonal temperatures, oil prices could level off or decline some. Then, as we move into March and the beginning of Spring, the gasoline market will likely become a key factor. But for the next few weeks, at least, it would be prudent to tread carefully when making oil price projections.

Residential Heating Fuel Prices Continue Their Climb
Residential heating oil prices rose higher in the period ending February 12, 2007. The average residential heating oil price increased by 3.6 cents per gallon last week to reach 244.9 cents per gallon, an increase of 3.2 cents from this time last year. Wholesale heating oil prices gained 4.8 cents to reach 181.6 cents per gallon, an increase of 14.5 cents compared to the same period last year.

The average residential propane price increased by 1.5 cents, reaching 202.0 cents per gallon. This was an increase of 1.2 cents compared to the 200.8 cents per gallon average for this same time last year. Wholesale propane prices gained 6.7 cents per gallon, from 102.5 to 109.2 cents per gallon. This was an increase of 11.6 cents from the February 13, 2006 price of 97.6 cents per gallon.

Retail Gasoline and Diesel Prices Up for Second Straight Week
For the second week in a row retail gasoline prices were up, rising 5.0 cents to 224.1 cents per gallon for the week of February 12, 2007. Prices remain 4.3 cents per gallon lower than at this time last year. All regions reported price increases. East Coast prices were up 2.3 cents to 218.9 cents per gallon. The Midwest saw the largest regional increase, with prices rising 8.1 cents to 222.4 cents per gallon. Gulf Coast prices were up 4.6 cents to 209.1 cents per gallon, while Rocky Mountain prices rose 1.8 cents to 214.1 cents per gallon. Prices for the West Coast were up 5.8 cents to 253.6 cents per gallon, 8.0 cents per gallon higher than this time last year.

Retail diesel prices also increased for the second consecutive week, jumping 4.1 cents to 247.6 cents per gallon. The price is now exactly the same as at this time last year. East Coast prices rose 3.2 cents to 246.5 cents per gallon. Midwest prices jumped 5.2 cents to 242.9 cents per gallon, while the Gulf Coast saw an increase of 3.4 cents to 239.4 cents per gallon. The only region to see a decrease was the Rocky Mountains, with prices falling 0.6 cent to 251.7 cents per gallon. Prices on the West Coast saw an increase of 5.7 cents to 277.7 cents per gallon, 15.6 cents per gallon higher than at this time last year.

Propane’s Sharp Seasonal Draw Continues
Following the prior week's near record stockdraw, propane inventories reported a sharp, although somewhat less severe, 4.8-million-barrel drop in inventories, as winter storms continued to exert sharp downward pressure on the Nation’s primary supply of propane. With last week’s stockdraw, U.S. inventories of propane moved lower and settled at an estimated 40.5 million barrels as of February 9, 2007, a level that continues to show a relatively strong safety net that is still in place for this time of year. Regional inventory activity continues to show the sharpest stockdraws occurring in the Midwest with a weekly decline measuring 2.6 million barrels. East Coast inventories reported a moderately strong weekly decline of 1.2 million barrels, while Gulf Coast inventories reported a surprisingly weak 0.8-million-barrel stockdraw during this same time. Last week, the combined Rocky Mountain/West Coast regions moved lower by 0.1 million barrels. Propylene non-fuel use inventories climbed higher for the third consecutive week with a 0.1-million-barrel gain, with inventories now accounting for higher 9.2 percent of total propane/propylene inventories compared with the prior week’s 7.9 percent share.

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