When we released our Winter Fuels Outlook (WFO) in the October 2022 Short-Term Energy Outlook at the start of the heating season (October through March), we forecast that increased consumption and higher prices than last winter would increase household expenditures for heating oil. We also forecast flat prices and more consumption would increase expenditures for propane. However, less consumption because of warmer-than-expected weather in addition to declining fuel prices reduced our forecast expenditures for heating oil and propane in our March update of the WFO (Figure 1). Fewer-than-expected heating degree days (HDD) reduced consumption for both fuels. Declining heating oil and propane prices have also lowered forecast expenditures. As we near the end of the winter heating season, this analysis explores the drivers to the changes in our forecast expenditures.
In the March 2023 update of the WFO expenditures, we forecast that U.S. household expenditures for heating oil will average $2,094 for the 2022–23 winter heating season, down more than 11% from the initial October forecast of $2,354 but 13% more than for the 2021–22 winter heating season. Over the same period, forecast heating oil consumption fell 9%, and prices fell 2%. In the October WFO, we include forecasts for 10% hotter and 10% colder scenarios to account for variability each winter. The March forecast for heating oil expenditures is slightly lower than the warmer scenario, which we forecast would have household expenditures average $2,139.
In the March WFO, we forecast that the average household using heating oil as its primary space heating fuel consumed 470 gallons, down 9% from the October forecast of 519 gallons. The primary driver of the decrease in consumption is warmer weather than forecast in the October WFO (Figure 2). Warmer-than-normal winter weather, particularly in the Northeast where the use of home heating oil is concentrated, reduced heating oil consumption. In the March WFO, we forecast 4% fewer HDDs for the United States in the 2022–23 winter than its previous 10-winter (2012–22) average and 10% fewer HDDs for the Northeast than its previous 10-winter average.
Further contributing to the decline in forecast heating oil expenditures are declining crack spreads (the difference between the price of crude oil and the wholesale price of distillate fuel, which includes home heating oil). After Russia’s full-scale invasion of Ukraine in February 2022, distillate crack spreads increased, rising sharply from $0.51 per gallon (gal) on February 23, 2022, to $1.46/gal on March 24, 2022. Because Russia is a significant supplier of distillate fuel to the global markets, disrupting the supply of these volumes increased distillate cracks spreads.
Historically, Europe has received a significant portion of its distillate imports from Russia. In our October forecast, we expected that Russia’s full-scale invasion of Ukraine and subsequent sanctions would limit Europe’s supply of heating oil while record-high natural gas prices would lead to fuel switching from natural gas to distillate, contributing to higher heating oil prices and crack spreads. However, warmer-than-normal winter weather in Europe kept distillate demand lower than what may have occurred with colder weather, and imports into Europe from the Middle East and Asia helped offset the loss of Russia’s distillate, raising inventories and lowering crack spreads (Figure 3).
Warmer weather and the resulting demand reduction over the past several months have increased distillate inventories in both Europe and in the Northeast United States. In the major Northern Europe refining and petroleum trading centers of Amsterdam and Rotterdam in the Netherlands and Antwerp in Belgium (ARA), gasoil inventories (which include diesel fuel and heating oil) have increased by 42% since December, rising from 12.8 million barrels on December 1, 2022, to 18.2 million barrels on March 23, 2023, 7% more than the previous five-year (2018–2022) average for that date.
In the United States, distillate inventory increases in the Northeast (PADDs 1A and 1B) at the end of 2022 were larger than the previous five-year average, and stock draws at the beginning of 2023 were less than the previous five-year average (Figure 4). From October 28 to December 30 (when distillate inventories typically increase), stock builds in the Northeast increased by 42% (6.0 million barrels) compared with the previous five-year average build of 10% (2.9 million barrels). From the beginning of the year to March 24 (when inventories typically decrease), inventories fell by 13% (2.8 million barrels) compared with the previous five-year average decrease of 21% (7.3 million barrels). Over the past several weeks, inventories have declined in line with seasonal trends during refinery maintenance season.
Decreases in consumption and price have likewise lowered forecast expenditures for households heating primarily with propane. Weighting the regional propane expenditures by the number of households in each forecast region (the Northeast, Midwest, and South), we estimate that the average household using propane as its primary space heating fuel will spend $1,476 on propane this winter, down 12% from the October forecast and down 7% from the 2021–22 winter. In the 10% warmer scenario of the October WFO, we forecast U.S. average household expenditures of $1,396, relatively in line with the latest March forecast. Our expected consumption fell from 605 gallons in the October forecast to 559 gallons in the March forecast, a decrease of 8% (46 gallons).
In addition to lower consumption, weekly data indicate that U.S. production of propane from October through March reached record highs. We estimate that October 2022 through March 2023 propane production averaged 2.4 million barrels per day (b/d), up 14% (295,000 b/d) from the previous five-winter (winter 2017–18 to winter 2021–22) average. Despite high levels of propane exports, high production and modest heating demand increased propane inventories. As of March 24, U.S. propane inventories were 56.2 million barrels, up 67% (25.1 million barrels) from the same week last year. The high propane inventories led to a forecast decline in average winter propane prices. In our March WFO, we expect the propane price will average $2.71/gal this winter, down 4% ($0.10/gal) from our October forecast.
|Retail prices||Change from last|
|Click to chart this seriesU.S.||3.421||-0.001down-arrow||-0.810down-arrow|
|Click to chart this seriesEast Coast||3.297||-0.012down-arrow||-0.795down-arrow|
|Click to chart this seriesMidwest||3.241||-0.021down-arrow||-0.812down-arrow|
|Click to chart this seriesGulf Coast||3.082||0.060up-arrow||-0.802down-arrow|
|Click to chart this seriesRocky Mountain||3.537||-0.094down-arrow||-0.630down-arrow|
|Click to chart this seriesWest Coast||4.378||0.013up-arrow||-0.889down-arrow|
|Retail prices||Change from last|
|Click to chart this seriesU.S.||4.128||-0.057down-arrow||-1.057down-arrow|
|Click to chart this seriesEast Coast||4.241||-0.068down-arrow||-1.008down-arrow|
|Click to chart this seriesMidwest||3.974||-0.047down-arrow||-1.020down-arrow|
|Click to chart this seriesGulf Coast||3.882||-0.048down-arrow||-1.090down-arrow|
|Click to chart this seriesRocky Mountain||4.231||-0.119down-arrow||-0.813down-arrow|
|Click to chart this seriesWest Coast||4.803||-0.059down-arrow||-1.071down-arrow|
|Retail prices||Change from last|
|Click to chart this seriesHeating Oil||4.073||-0.060down-arrow||-1.054down-arrow|
|Click to chart this seriesPropane||2.671||-0.009down-arrow||-0.312down-arrow|
|Futures prices||Change from last|
|Click to chart this seriesCrude oil||69.26||2.52up-arrow||-44.64down-arrow|
|Click to chart this seriesGasoline||2.589||0.087up-arrow||-0.881down-arrow|
|Click to chart this seriesHeating oil||2.695||0.016up-arrow||-1.420down-arrow|
|*Note: Crude oil price in dollars per barrel.|
|Stocks||Change from last|
|Click to chart this seriesCrude oil||473.7||-7.5down-arrow||63.7up-arrow|
|Click to chart this seriesGasoline||226.7||-2.9down-arrow||-12.1down-arrow|
|Click to chart this seriesDistillate||116.7||0.3up-arrow||3.2up-arrow|
|Click to chart this seriesPropane||56.243||-2.460down-arrow||22.534up-arrow|