Released on October 8, 2008
(Next Release on October 16, 2008)

Heating Oil Grievances
In 1997, the sitcom Seinfeld, introduced America to a new winter holiday – Festivus. The “Airing of Grievances,” one of the core traditions of Festivus, involved friends and family telling each other about all the times that others have disappointed them over the past year. We suspect that this Festivus, many Northeastern residents will be airing grievances they’re having over high heating oil prices.

About 7 percent of U.S. households use heating oil. While this number has been dropping steadily over the past decade, heating oil remains vital to the Northeast, where around 25 percent of households in the Middle Atlantic and about 46 percent of homes in New England use it as their primary heating fuel. Furthermore, not all U.S. households that use oil for home heating consume a similar amount. According to EIA’s 2005 Residential Consumption Survey, the households in the bottom 20 percent of heating oil consumers use less than 500 gallons per year while the households in the top 20 percent consume over 1200 gallons (Figure 1).

What is causing high heating oil prices?

The main driver of heating oil prices is the cost of crude oil (Figure 2). During last year’s winter season (defined as October 2007 through March 2008), West Texas Intermediate (WTI) crude oil prices and residential heating oil prices averaged $2.25 and $3.31 per gallon, respectively. In EIA’s latest Short-Term Energy Outlook (STEO), WTI crude oil prices are projected to average $2.63 per gallon, up 38 cents from last winter, and residential heating oil prices are expected to average $3.89 per gallon, up 58 cents.

Heating oil prices rose even faster than crude prices over the past several years, in large part because of higher wholesale margins for distillates – a group of similar petroleum products that includes diesel fuels and fuel oils, including home heating oil. Typically, diesel fuel and heating oil wholesale prices are closely related because diesel fuel can be burned as heating oil during the winter. The heating oil wholesale margin has grown from under 23 cents per gallon during the winter of 2004-05 to over 40 cents per gallon (projected) for the coming winter. As discussed in the June 4, 2008 issue of This Week in Petroleum, global demand for diesel has grown faster than that for other products leading to tightness in the global balance between distillate supply and demand as well as higher margins.

In spite of higher prices, heating oil consumption is also likely to grow this winter. The National Oceanic and Atmospheric Administration’s (NOAA) forecast for the 2008-09 winter predicts slightly colder weather than last year (more heating-degree days) for most of the country, including the Northeast. If this forecast holds and heating oil consumers choose not to lower their thermostats, consumption will be higher than last year. Steeper prices combined with colder weather could put a serious dent in many household budgets.

How much will heating oil cost?

How could these forecasts change?

Residential Heating Fuel Price Survey Begins For The 2008/09 Season
Beginning this week and continuing into mid-March 2009, prices for wholesale and residential heating oil and propane will be included in This Week In Petroleum, as well as in the Weekly Petroleum Status Report and on EIA's Heating Oil and Propane Update web page. As of October 6, residential heating oil prices averaged 367.0 cents per gallon, which is 89.6 cents per gallon higher than last year during the same time frame. The average wholesale heating oil price of 275.3 cents per gallon showed an increase of 45.4 cents when compared to the same time last year.

Residential propane prices hit 265.9 cents per gallon on average, a new Winter Fuels Survey record high, and 53.4 cents higher than one year ago. Wholesale propane prices averaged 144.4 cents per gallon as of October 6. This was an increase of 1.4 cents from the same period last year.

U.S. Average Gasoline Price Falls Below $3.50
The U.S. average price for regular gasoline plunged 14.8 cents to slip below $3.50 for the first time since April 14. Prices have now fallen for three weeks in a row, bringing the average to 348.4 cents per gallon, but are 71.4 cents above a year ago. The price on the East Coast fell 12 cents to 354.4 cents per gallon. The largest drop occurred in the Midwest, where the average price plummeted 21.6 cents. At 339.3 cents per gallon, the price was the lowest among the major regions. The price on the Gulf Coast tumbled 16.4 cents to 343.6 cents per gallon. The price in the Rocky Mountains was down for the eleventh consecutive week, slipping 10.4 cents to 349.6 cents per gallon. Dropping for the fifteenth consecutive week, the price on the West Coast fell another 7.4 cents to hit 356.8 cents per gallon. The price in California shrank 6.9 cents to 360.1 cents per gallon.

The U.S. average diesel price dropped 8.4 cents to 387.5 cents per gallon. Prices settled below the $4 mark in all major regions of the country for the first time since March 10. The price on the East Coast fell 9.2 cents to 392.8 cents per gallon, although it is still 89.7 cents higher than last year. Dropping 7.8 cents, the price in the Midwest fell to 385.8 cents per gallon. The average price in the Gulf Coast dipped 8.6 cents to 384.3 cents per gallon, remaining the lowest of any region. The price in the Rocky Mountains decreased 5.8 cents to 388.6 cents per gallon. The average price on the West Coast declined 9.4 cents to 384.7 cents per gallon. In California, the average also moved down by 9.4 cents to 386.9 cents per gallon.

Propane Inventories Up Sharply
The final week of the traditional build season saw propane inventories move sharply higher by 2.8 million barrels, settling at an estimated 60.9 million barrels as of October 3, 2008. However, propane inventories are still slightly below the average range for this time of year. Gulf Coast inventories soared higher by 2.1 million barrels last week but remain below the lower boundary of the average range for this time of year. Midwest inventories gained 0.7 million barrels last week and are near the upper boundary of the average range. Both East Coast and the combined Rocky Mountain/West Coast regions reported inventories flat during this same time. Propylene non-fuel use inventories were also sharply higher with a nearly 1.0 million-barrel gain that increased the share of this fuel to 6.5 percent of total propane/propylene inventories, compared with the prior week’s 5.1 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.