October 14, 2010
(Next Release on October 20, 2010)

Heating Oil Costs This Winter

EIA expects households heating primarily with heating oil to spend an average of $2,124 this winter heating season (October 1 through March 31), an increase of $218 or 12 percent over last winter (Table 1). According to EIA projections from the October 2010 Short-Term Energy and Winter Fuels Outlook, residential heating oil prices this winter are expected to average about $3.06 per gallon, $0.23 per gallon (8 percent) higher than last winter. In addition to higher prices, U.S. consumption of heating oil is also expected to increase by about 3 percent compared with last winter.

Fuel expenditures for individual households are highly dependent on local weather conditions, market size, the size and energy efficiency of individual homes and their heating equipment, and thermostat settings. The National Oceanic and Atmospheric Administration (NOAA) projects population-weighted U.S. heating degree days will be about 3 percent higher than last winter. However, heating degree-day projections vary widely between regions. For example, the Northeast, the principle market for heating oil, is projected to be about 5 percent colder than last winter, while the South is projected to be about 15 percent warmer.

The Northeast accounts for 80 percent of U.S. heating oil consumption. In that region, the average household is projected to spend 13 percent more ($259) than last winter as a result of a 5-percent increase in consumption and regional prices 8 percent higher than last winter.

One factor pushing up heating oil prices this winter is higher crude oil prices. The average cost of crude oil to U.S. refiners is projected to increase from an average $74.50 per barrel last heating season to nearly $78 per barrel, a gain of about $3.45 per barrel or 8 cents per gallon.

Higher expected gross retail heating oil margins are a more significant factor in the projected increase in residential heating oil prices this winter. The gross retail heating oil margin is the difference between the retail price of heating oil and the refiner’s average cost of crude oil. EIA expects these margins to be about 16 cents per gallon higher than last winter. Gross retail heating oil margins were relatively low last winter compared with the previous four winters (Figure 1) because of the relatively mild weather in the Northeast, which reduced heating oil consumption, and the recession, which significantly reduced diesel fuel consumption. Nevertheless, while higher than last year, heating oil margins are expected to return to levels seen over the 2005 through 2007 winter periods and lie well below those seen in 2008.

Figure 1.   Gross Retail Heating Oil Margins
                  (retail price minus average cost of crude oil)

Retail Gasoline Price Jumps 9 Cents
The U.S. average retail price for a gallon of gasoline shot up 9 cents from last week to $2.82 per gallon and was $0.33 per gallon higher than last year at this time. Prices were up across the country. East Coast prices saw the biggest increase, gaining a dime, but remaining below the national average price at $2.77 per gallon. The Midwest was close behind with an increase of nine and a half cents. The Gulf Coast saw an increase comparable to the national average rise, while the gain on the West Coast was slightly below the national average change, increasing seven cents versus last week. The Rocky Mountains lagged the rest of the regions with an increase of less than a penny.

Retail diesel prices were also up across the country this week, with the national average gaining 7 cents to reach $3.07 per gallon, $0.47 higher than last year. The price increase was most pronounced on the West Coast where diesel was more than seven cents higher than last week. The West Coast continues to have the highest diesel prices in the Nation at $3.24 per gallon. Prices on the East Coast and in the Midwest registered gains of just under seven cents. On the Gulf Coast and in the Rocky Mountain region diesel was about six cents higher than last week.

Propane Inventories Post Weekly Rise
Last week, total U.S. inventories of propane experienced a modest seasonal build of 0.3 million barrels to end at 64.3 million barrels, ahead of the fall crop-drying and winter heating seasons. Although the majority of stock gain happened in the Gulf Coast (0.4 million barrels), inventories in the region remained below the lower boundary of the average range for this time of year. The East Coast and Rocky Mountain/West Coast regional propane stocks grew slightly. However, New England stocks have decreased by 66 percent in the last 6 weeks due to pipeline and other supply issues in the region. The Midwest regional stocks fell by 0.2 million barrels. Propylene non-fuel use inventories percentage share of total propane/propylene inventories dropped to 3.3 percent.

Residential Heating Fuel Prices Show Modest Gains
Residential heating oil prices increased during the period ending October 11, 2010. The average residential heating oil price gained $0.04 per gallon last week to reach $2.95 per gallon, an increase of $0.42 per gallon from the same time last year. Wholesale heating oil prices remained flat last week at $2.35 per gallon; $0.42 per gallon more than last year at this time.

The average residential propane price increased, rising $0.04 to reach $2.40 per gallon. This was an increase of $0.32 per gallon compared to the $2.08 per gallon average from the same period last year. Wholesale propane prices rose by $0.02 per gallon, from $1.31 per gallon to $1.33 per gallon. This was an increase of $0.33 per gallon when compared to the October 12, 2009 price of $1.00 per gallon.

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