Release date: February 2, 2017 | Next release date: February 8, 2017
U.S. heating oil and propane prices higher than same time last year
Despite most of the country experiencing, on average, a relatively warm winter so far, higher crude oil prices have contributed to higher heating oil prices and strong export demand for propane has resulted in higher prices for that fuel as well. Last winter, unseasonably warm temperatures and falling crude oil prices combined to keep expenditures for winter heating fuels lower than historical averages. The latest EIA Short-Term Energy Outlook (STEO) projects U.S. average heating oil and propane expenditures to increase 36% and 23%, respectively, compared with last winter, but both are still projected to be lower than average expenditures over the past 10 winters. Heating oil expenditures are expected to be $475 (26%) lower than the average expenditures of the previous 10 winters, and propane $14 (0.7%) lower.
To date, the winter of 2016-17 has been comparatively mild. U.S. average heating degree days from October to December were 164 (11%) fewer than the previous 10-year average for the same period. Barring a significant change in weather patterns from today through March, this winter is expected to have a total of 273 fewer heating degree days than the 10-year average. U.S. inventories of winter heating fuels—propane and distillate, which includes heating oil— started the winter of 2016-17 above their five-year averages (what is considered normal for that time of year). Heading into February, inventories of both fuels remain above their five-year averages, but propane inventories are now declining because of higher exports while distillate inventories are increasing.
In the last week of January, the spot price for Dated Brent crude oil averaged $55 per barrel (b), $23/b higher than the same time last year. On January 30, the U.S. average residential heating oil price was $2.63 per gallon (gal), 55 cents/gal higher than at the same time last year. U.S. residential propane prices, which are a function of both crude oil and natural gas prices, have also trended higher, up 37 cents/gal compared with the same time last year to $2.39/gal on January 30 (Figure 1).
Increased propane production, combined with an expansion in U.S. infrastructure to export and store propane, resulted in U.S. propane inventories that were higher than the five-year average during 2015 and 2016. However the growth in propane storage infrastructure has slowed, and the historical average now accounts for years with this greater storage capacity and higher inventory levels. A higher historical average and strong demand for U.S. propane from the global export market, have resulted in a recent narrowing of propane inventory levels versus the five-year average. U.S. propane exports for the past four weeks averaged 1.09 million barrels per day (b/d), 384,000 b/d more than the same period last year. U.S. propane inventories for the week ending January 27 were 58.8 million barrels, just 3.3 million barrels above the five-year average and 16.1 million barrels less than the same time last year.
Total distillate inventories are 11.0 million barrels higher than the same time last year and have been above the five-year average level since the summer of 2015. High U.S. refinery runs in 2015 and 2016 kept distillate inventories higher than historical norms, and the trend has continued into this winter. For the week ending January 27, U.S. total distillate inventories were 170.7 million barrels, 33.9 million barrels above the five-year average (Figure 2).
Although less pronounced in scale and speed compared with propane, the market for heating oil is also changing. The long-term trend of standardization to the lower allowed maximum sulfur content in heating oil had resulted in lower inventory levels as fewer types of products were needed in storage and in a larger share of ultra-low sulfur diesel (ULSD) in total distillate inventories. This trend is the result of state changes in the U.S. Northeast, specifically in Petroleum Administration for Defense District (PADD) 1A New England and PADD 1B Central Atlantic. This region has the highest concentration of homes heated by heating oil and includes the major storage hub of New York Harbor, the delivery point for the New York Mercantile Exchange (NYMEX) ULSD futures contract.
Over the past 10 years, PADD 1B has shifted its total distillate make up from around 20% ULSD to over 85% ULSD. However, several states in PADD 1A have yet to make the full change to the 15 parts per million (ppm) of sulfur standard of ULSD. The makeup of PADD 1A distillate inventory, therefore, has shifted relatively modestly from near 20% 10 years ago to near 50% currently. The share of ULSD in total PADD 1A distillate inventories is likely to increase further as the remaining states in PADD 1A transition to the new lower-sulfur specification in the coming years (Figure 3).
U.S. average regular gasoline and diesel retail prices fall
The U.S. average regular gasoline retail price fell three cents from the previous week to $2.30 per gallon on January 30, up 47 cents from the same time last year. The Midwest price fell five cents to $2.17 per gallon, the Gulf Coast price fell nearly four cents to $2.09 per gallon, and the East Coast price fell three cents to $2.32 per gallon. The West Coast and Rocky Mountain prices remained virtually unchanged at $2.68 per gallon and $2.26 per gallon, respectively.
The U.S. average diesel fuel price fell one cent to $2.56 per gallon on January 30, 53 cents higher than a year ago. The Rocky Mountain price fell nearly two cents to $2.52 per gallon, while the East Coast and Midwest prices each fell one cent to $2.62 per gallon and $2.50 per gallon, respectively. The West Coast and Gulf Coast prices each fell less than one cent, remaining at $2.85 per gallon and $2.41 per gallon, respectively.
Propane inventories fall
U.S. propane stocks decreased by 5.6 million barrels last week to 62.6 million barrels as of January 27, 2017, 15.4 million barrels (19.8%) lower than a year ago. Gulf Coast, Midwest, and Rocky Mountain/West Coast inventories decreased by 3.9 million barrels, 1.2 million barrels, and 0.4 million barrels, respectively, while East Coast inventories increased by 0.1 million barrels. Propylene non-fuel-use inventories represented 6.1% of total propane inventories.
Residential heating oil price virtually unchanged while propane price increases
As of January 30, 2017, residential heating oil prices averaged $2.63 per gallon, virtually unchanged from last week's price but 55 cents per gallon higher than last year's price at this time. The average wholesale heating oil price is $1.69 per gallon, almost two cents per gallon less than last week but nearly 55 cents per gallon higher than a year ago.
Residential propane prices averaged just over $2.39 per gallon, up four cents per gallon from last week and 37 cents per gallon higher than a year ago. Wholesale propane prices averaged $0.94 per gallon, nearly five cents per gallon higher than last week and 48 cents per gallon higher than last year's price.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 01/30/17 | Week | Year | |
| Gasoline | 2.296 | -0.030 | 0.474 |
| Diesel | 2.562 | -0.007 | 0.531 |
| Heating Oil | 2.630 | -0.001 | 0.548 |
| Propane | 2.394 | 0.040 | 0.372 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 01/27/17 | Week | Year | |
| Crude oil | 53.17 | 0.75 | 19.55 |
| Gasoline | 1.527 | -0.039 | 0.424 |
| Heating oil | 1.619 | -0.027 | 0.564 |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 01/27/17 | Week | Year | |
| Crude oil | 494.8 | 6.5 | 23.4 |
| Gasoline | 257.1 | 3.9 | 2.7 |
| Distillate | 170.7 | 1.6 | 11.0 |
| Propane | 62.648 | -5.564 | -15.438 |