Heating Fuels Prices At Record Levels

With crude oil prices over $100 per barrel and cold weather in many parts of the country driving up demand, heating fuel prices have been setting new record highs. With residential prices from the beginning of winter to mid-March averaging $3.28 per gallon for heating oil and $2.46 per gallon for propane, and this week's average heating oil price above $3.85, prices for the winter as a whole are likely to set a new nominal record.

As discussed in This Week In Petroleum (TWIP), high crude oil prices have been an important factor underlying high petroleum product prices this season, including residential heating oil and propane. As the chart below suggests, the surge in crude oil prices from 2007 to early 2008 is clearly reflected in both heating oil and propane price increases over this period. (Note: the chart shows prices that are collected weekly only from October-March by the EIA State Heating Oil and Propane Program (SHOPP).)

Beyond crude oil prices, the balance between supply and demand in the market for each type of petroleum product, as reflected in inventory levels, also affects prices. That balance changed over the course of the winter, and was not the same for propane and heating oil. At the start of the 2007-08 heating season, total distillate fuel inventories stood at the upper limit of the average range, implying an adequate supply of heating fuels leading into winter. However, as discussed in the January 24, 2008 issue of TWIP , inventories of high sulfur distillate fuel, the product specifically identified as heating oil, were relatively low, even from the outset of winter, due to a shift of a significant portion of high sulfur distillate usage (the off road sector) to low sulfur diesel fuel consumption. Inventories, particularly in New England and the Middle Atlantic regions, remain at relatively low levels, reflecting the strong global market for distillate fuels. Tightness in the distillate market is reflected in the growing margin between crude oil and heating oil prices over recent weeks, as shown in the chart.

In contrast, propane inventories began the heating season slightly below the average range, implying the lack of significant cushion to buffer supplies in the event of severe winter weather, or supply disruptions. In both cases, uncertainty over the adequacy of inventory levels early in the heating season may have added to the upward price pressure exerted on these fuels by rising crude oil prices.

January brought a brief reprieve, when unseasonably mild temperatures temporarily dampened peak winter demand, and softened residential heating oil prices. Nevertheless, residential propane prices remained relatively firm in January, possibly signaling lingering supply fears. By mid-February, with the return of colder weather, and relatively early refining maintenance programs in the US and Europe, distillate markets worldwide tightened sharply, as evidenced by rapidly declining stocks and rising prices. Ironically, bulging gasoline inventories and associated US gasoline market weakness may have exacerbated distillate markets by reducing outlets for surplus gasoline production, which accompanies distillate production.

But with the spring equinox arriving tomorrow, heating fuels consumers may finally look forward to better weather before long, and along with it, some respite from record prices. However heating needs, particularly in the Northeast, can persist through April, keeping pressure on markets for a bit longer.

Residential Heating Oil Price Sets Record High At End Of Winter Season

Residential heating oil prices set a record high for the 5th consecutive week during the period ending March 17, 2008, the 24th and last week of the survey this season. The average residential heating oil price increased by 17.5 cents last week to reach 385.2 cents per gallon, which was an increase of 135.7 cents from the 24th reporting period last year ending March 12, 2007. Wholesale heating oil prices rose 21.6 cents to reach 331.8 cents per gallon, which was a gain of 147.6 cents compared to last year.

The average residential propane price fell for the 2nd week in a row to end the survey season down by 0.5 cent, reaching 259.8 cents per gallon. This was an increase of 55.2 cents compared to the 204.6 cents per gallon average for the same period last year. Wholesale propane prices rose by 3.7 cents, from 159.7 to 163.4 cents per gallon. This was an increase of 53.5 cents from the March 12, 2007 price of 109.9 cents per gallon.

These prices come from the last survey done for the 2007/08 winter heating season. Weekly retail prices for heating oil and propane will restart for the 2008/09 season beginning in October 2008.

U.S. Gasoline and Highway Diesel Prices Continue Climb to Record Highs

Once again, the price of regular grade gasoline rose throughout the country; the U.S. average retail price increased by 5.9 cents to hit a new high of 328.4 cents per gallon, up by 70.7 cents above the price last year. The average price on the East Coast reached a new all-time high of 325.3 cents per gallon surpassing the previous record set in September of 2005. The price increased by 5.9 cents from the previous week and was 70.5 cents above the price last year. The average price in the Lower Atlantic remained at an all-time high shooting up another 6.3 cents, to 327.1 cents per gallon. The price in the Midwest went up by 6.1 cents to 325.2 cents per gallon, an increase of 76.7 cents from a year ago. Despite the strong increase, the price remained 7.4 cents below the all-time high price in the region set May 21, 2007. Although the price increase for the Gulf Coast region was the smallest of any region for the week, the increase of 4.6 cents nonetheless drove the price to 317.7 cents per gallon, the highest price in history for the region and 76.9 cents higher than the price a year ago. The price in the Rocky Mountains shot up by 6.9 cents, to 317.8 cents per gallon, but remained 9.8 cents below the all-time high price of May 28, 2007. The average price on the West Coast remained the highest of any region in the country, rising by 6.6 cents to 352.3 cents per gallon. For the third consecutive week, this was a new record high and was 54.6 cents above the price last year. In California, the average price for regular grade jumped by 6.7 cents to 360.4 cents per gallon 48.3 cents above the price a year ago.

For the fifth week in a row, average retail diesel prices continued their rapid ascent, and for the fourth consecutive week, the U.S. average price for retail diesel reached an all-time high. At 397.4 cents per gallon, the U.S. average increased by 15.5 cents and was up by 129.3 cents over the price a year ago. On a regional basis, prices remained at all-time high levels in all regions of the country, exceeding $4.00 per gallon in some regions. On the East Coast, the average price surged up by 16.5 cents to 403.5 cents per gallon, 137.4 cents per gallon above last year. In the Midwest, the price jumped by 17.4 cents to 395.8 cents per gallon, up by 129.2 cents from a year ago. The price in the Gulf Coast went up by the smallest amount of any region, but still increased by 11.6 cents to 391.4, to reach 391.4 cents per gallon. Although the average price in the Rocky Mountains increased by 16.0 cents, at 389.2 cents per gallon, it was the lowest of any region. On the West Coast, the average price shot up by 13.3 cents to 401.8 cents per gallon, 120.5 cents above the price a year ago. The average price in California grew by 12.8 cents to 408.3 cents per gallon, 120.8 cents above the price a year ago.

Propane Inventories Inch Lower

With the end of the winter heating season near, primary supplies of propane are beginning to show signs of nearing their yearly lows as witnessed by last week's modest 0.3 million-barrel decline. Consequently, total inventories of propane stood at an estimated 27.3 million barrels as of March 14, 2008, a level nearly 1.5 million barrels above the same period last year. Regional activity remained mixed, with inventories in the East Coast up 0.1 million barrels, while Midwest inventories remained relatively unchanged during this same time. The only weekly declines were reported in the Gulf Coast that showed a 0.3 million-barrel drop, and the combined Rocky Mountain/West Coast region, that slipped lower by 0.1 million barrels. Propylene non-fuel use inventories also remained relatively unchanged last week but accounted for a slighter higher 9.2 percent of total propane/propylene inventories, compared with the prior weeks 9.0 percent share.

Crude oil