Released on February 13, 2008
(Next Release on February 21, 2008)

Looking for Shadows
February 2 was Groundhog Day. According to the lore, if the groundhog sees its shadow that day when peeking out of its burrow, there will be six more weeks of winter weather. While Punxsutawney Phil, perhaps the Nation’s most famous groundhog, did see his shadow on that day, it was reported that Jimmy the Groundhog, of Sun Prairie, Wisconsin did not, giving us conflicting forecasts on whether the United States will have an early spring. Reportedly, there were at least a dozen Groundhog Day celebrations across the country, with mixed results.

Rather than rely on groundhogs, EIA’s Short-Term Energy Outlook uses weather forecasts from the National Oceanic and Atmospheric Administration (NOAA). According to the most recent NOAA forecast, the overall temperatures for the remainder of the heating season (February and March) will be close to the 30-year average, with temperatures in the Northeast slightly colder-than normal, while the Midwest is projected to have slightly warmer-than-normal weather. Unfortunately for heating oil customers, whether the groundhog sees his shadow or not; or whether NOAA’s forecast is high or low, temperatures this winter will not be the greatest determinant of expenditures for heating oil. Instead it will be the price of crude oil, a global commodity whose price is largely determined by the worldwide forces of supply and demand.

Heating oil customers have been and will continue to pay considerably more to heat their homes this winter (defined here as October through March) compared to last winter. Heating oil expenditures are determined by two factors: consumption and price. Although weather certainly determines heating oil consumption, it is the price of heating oil this winter that has largely affected these expenditures. And it is the price increase in crude oil that is the primary reason for higher heating oil prices. There have been times in past where factors besides crude oil prices have been major causes in determining heating oil expenditures. In late January and early February of 2000, for example, the weather was bitterly cold in the Northeast. As a result, consumption soared, heating oil inventories were low and heating oil prices rose substantially more than crude oil prices. During that time, retail heating oil prices were about 66 cents per gallon higher than February 1999 prices, while the price of crude oil increased by only about 40 cents per gallon over the same time period. Another occurrence where heating oil prices rose much faster than crude oil prices was during the aftermath of Hurricane Katrina in 2005, when major refinery and pipeline operations were curtailed and severely affected supplies.

However, in most cases, when heating oil expenditures are high, crude oil prices are a major factor. It is interesting to note that when EIA published the winter heating fuel expenditures projections on page 9 in the October 2007 Short-Term Energy Outlook (STEO), the weather (and thereby consumption), particularly in the Northeast, where about 80 percent of the nation’s heating oil is consumed, was expected to be about 1 percent warmer than normal. In the heating fuel expenditures table from the current February 2008 STEO, heating oil consumption in the Northeast is expected to be about 4 to 5 percent less than normal. Despite this warmer weather, we have increased our projections for average household winter expenditures for heating oil in the Northeast by nearly $200, from $1,827 to $2,001. Over the same interval, the heating oil price projection has increased by about 39 cents per gallon, from $2.89 per gallon to $3.28 per gallon. As we stated in the beginning of the heating season, in This Week in Petroleum October 11, 2007: “if the projection holds, these are likely to be the highest residential heating oil prices on record for the six-month season”. Given current price projections, this quote is still valid, even more so. Again, the main reason for this projected increase is higher crude oil prices, which are currently averaging around $90 per barrel for West Texas Intermediate (WTI). Crude oil prices are likely to average about $90 per barrel (or $2.14 per gallon) throughout the winter. In the October 2007 STEO, the price for WTI was projected to average $75.77 per barrel (or $1.80 per gallon) over the heating season. Thus, it is apparent that the upward revision for crude oil prices (34 cents per gallon) explains nearly 90 percent of the increase in heating oil price projections. For a discussion on why crude oil prices are so high, see This Week in Petroleum November 7, 2007. Next Groundhog Day, rather than looking for shadows, perhaps Jimmy the Groundhog and Punxsutawney Phil should check out crude oil prices instead. Every groundhog has his day.

Residential Heating Fuel Prices Dip Slightly
Residential heating oil prices decreased only marginally during the period ending February 11, 2008, the 19th week of the survey this season. The average residential heating oil price trickled lower by 0.1 cent last week to reach 330.5 cents per gallon, which was an increase of 89.2 cents from the 19th reporting period last year ending February 5, 2007. Wholesale heating oil prices rose sharply by 12.0 cents, reaching 265.9 cents per gallon, which was a gain of 89.1 cents compared to last year.

The average residential propane price decreased, by 1.2 cents, to reach 255.1 cents per gallon. This was an increase of 54.6 cents compared to the 200.5 cents per gallon average for the same period last year. Wholesale propane prices dropped solidly by 8.9 cents, from 153.2 to 144.3 cents per gallon. This was an increase of 41.8 cents from the February 5, 2007 price of 102.5 cents per gallon.

Retail Gasoline Price Drops 1.8 Cents
The U.S. average retail price for regular gasoline slipped 1.8 cents lower to 296.0 cents per gallon as of February 11, 2008. This was the lowest price since late October of 2007 and was 71.9 cents higher than the price a year ago. On a regional basis, prices with the exception of the West Coast were down from the previous report. Prices on the East Coast fell 2.8 cents to 297.7 cents per gallon. This was the lowest price since early November 2007 and 78.8 cents per gallon above the price a year ago. The Midwest price dropped 2.0 cents to 294.2 cents per gallon, 71.8 cents per gallon more than last year. The Gulf Coast price, the lowest on a regional basis, fell by 2.1 cents to 285.1 cents per gallon. The Rocky Mountain price fell by 0.6 cent to 293.5 cents per gallon. Prices on the West Coast remained the highest on a regional basis as the price increased slightly, moving up by 0.5 cent per gallon to 306.0 cents per gallon. The average price for regular grade in California moved up slightly by 0.1 cent to 310.8 cents per gallon, 47.6 cents above the price a year ago.

On a national basis, the retail diesel fuel price was unchanged from the previous period at 328.0 cents per gallon. This was 80.4 cents per gallon higher than a year ago. Regionally, prices were mixed, as the price on the East Coast dropped by 1.4 cents to 332.4 cents per gallon. This was the lowest price in the region since early November 2007 and 85.9 cents per gallon higher than the price a year ago. The price in the Midwest increased by 0.6 cent to 324.9 cents per gallon, 82.0 cents above a year ago. On a regional basis, the price in the Gulf Coast was the lowest in the country. The price there fell by 0.8 cent to 323.9 cents per gallon, 84.5 cents above the level a year ago. Prices in the western portions of the country increased with the price in the Rocky Mountains moving up slightly, by 0.4 cent, to 326.4 cents per gallon, 74.7 cents above the price a year ago. On the West Coast, the average price increased by 2.2 cents to 334.7 cents per gallon, 57.0 cents higher than the price a year ago. The price in California increased by 1.6 cents to 339.3 cents per gallon, 48.8 cents more than a year earlier.

Draw on Propane Inventories Slows
The recent heavy draw on propane inventories slowed last week with a reported 1.7-million-barrel decline that lowered stocks to an estimated 36.8 million barrels as of February 8, 2008. For this time of year, total propane inventories continued to move on a path well within the average range. Last week’s stockdraw was mostly concentrated in the Midwest with inventories moving lower by 1.6 million barrels. Gulf Coast inventories also declined last week, but the 0.3-million-barrel decline was moderate in comparison to the drop in the Midwest. East Coast inventories were up by 0.2 million barrels, while inventories in the combined Rocky Mountain/West Coast region gained 0.1 million barrels during this same time. Propylene non-fuel use inventories fell last week and accounted for a slightly lower 6.9 percent of total propane/propylene inventories from the prior week’s 7.2 percent share.

Registration Now Open for EIA Energy Conference on April 7-8
Registration is now open for an energy conference that EIA is holding in Washington, DC on April 7-8.  To see the exciting agenda planned and to register for the free conference, please go to: http://www.eia.doe.gov/eia_conference_2008.html.

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