Winter heating oil expenditures for the average household in the Northeast are likely to be the highest on record despite Punxsutawney Phil's prediction of an early spring this past Groundhog Day (February 2). Groundhog Day occurs near the midpoint of winter in the Northern Hemisphere, which runs from the winter solstice (the shortest day of the year, December 21 or 22) to the spring equinox (when the night and day are of equal length, March 20 or 21). The U.S. Energy Information Administration (EIA), on the other hand, defines the heating season as running from October through March, the months of the year in which population-weighted heating degree days (the average of daily low and high temperatures subtracted from the base of 65 degrees Fahrenheit) reach their maximum level.

Phil's predictive skills notwithstanding, (Punxsutawney Phil Versus the NOAA's U.S. National Temperature), Groundhog Day probably arrives too late during the heating season to provide any significant choices for the heating oil customer. During a normal heating season, residential customers in the Northeast (New England and the Middle Atlantic) will likely have consumed almost two-thirds of their heating oil by Groundhog Day. EIA presents more timely help for consumers by providing projections for heating fuel prices, heating fuel consumption, as well as average household heating expenditures. Throughout the heating season, EIA publishes heating fuel projections for expenditures and prices starting with the Short-Term Energy and Winter Fuels Outlook (STEO) in October. These projections are updated monthly through March in Table WF01. Average Consumer Prices and Expenditures for Heating Fuels During the Winter.

Households may better plan their budgets by gauging their future heating fuel expenditures before winter sets in. Two factors determine heating oil expenditures: the volume of heating oil consumed by an average household and the price. Consumption is directly related to heating degree-days and, as a rule-of-thumb, a 1-percent increase in heating degree-days increases consumption of fuel for space heating by about 1 percent. About two-thirds of the retail price of heating oil is from the price of crude oil. The costs for refining, distribution, and marketing, combined with taxes, make up the remainder.

Table 1 shows how the projections for weather and prices have evolved over the last five months. The projected number of heating degree-days in the Northeast, where most of the country's heating oil is consumed, increased by almost 2 percent between the October and February editions of the STEO. Weather during the last two months was particularly cold in the Northeast, averaging 11 percent and 8 percent colder than normal in December and January, respectively. However, rising oil prices, not colder weather, have been the primary cause of the increase in forecasts of average winter season heating expenditures for households heating with oil since the October STEO as Table 1 illustrates.

Table 1.  Forecasts of major determinants for Winter 2010-11 of 11111111Northeast heating oil expenditures

 

STEO publication date

Heating degree-days for the Northeast
(degree-days)

U.S. average refiner acquisition cost of crude oil
($/barrel)

Northeast
heating oil 
retail price  
($/gallon)

Northeast
total expenditures ($)

13-Oct-10                     

5,147

$77.93

$3.06

$2,201

9-Nov-10                     

5,078

$80.88

$3.13

$2,225

7-Dec-10                    

5,060

$81.79

$3.18

$2,253

11-Jan-11                     

5,153

$85.43

$3.29

$2,362

8-Feb-11                     

5,241

$85.25

$3.33

$2,431

Source: EIA Short-Term Energy Outlook

Can Punxsutawney Phil help the heating oil customers with their budgets? The estimated average household heating oil expenditure for the Northeast this winter, $2,431 is likely to be the highest ever (in terms of nominal dollars) since EIA began calculating these numbers (Table 2). With the winter now two-thirds over (by EIA standards), it is important to note that the most current EIA expenditure estimate is about 10 percent above the October STEO forecast of $2,201. For this heating season, it would have been wise for heating oil consumers to rely on EIA's STEO rather than waiting until February for Phil as they decide how much to budget for their heating bills.

 

Table 2. Heating oil expenditures in the Northeast 2001-02 through 2010-11 

 

Average

Heating oil

 

 

consumption

retail price

Expenditures

Winter of

(gallons)

(dollars per gallon)

 ($)

2010-11

729

$3.33

$2,431

2009-10

685

$2.84

$1,946

2008-09

733

$2.66

$1,951

2007-08

684

$3.31

$2,267

2006-07

676

$2.51

$1,696

2005-06

669

$2.45

$1,641

2004-05

723

$1.94

$1,401

2003-04

700

$1.36

   $953

2002-03

743

$1.34

   $996

2001-02

577

$1.10

   $635

Source: EIA Short-Term Energy Outlook

 

Retail gasoline and diesel prices both move higher
The U.S. average retail price of regular gasoline advanced eight-tenths of a cent versus last week to $3.14 per gallon, $0.53 per gallon higher than last year at this time. Prices on the West Coast gained close to a nickel, the biggest increase of any major region in the country. Prices in the Rocky Mountains and on the Gulf Coast climbed almost three cents over last week, while the gasoline price on the East Coast was up more than a penny. Moving in the other direction, the Midwest gasoline price fell about three and a half cents.

Diesel prices were higher this week with the U.S. average retail price adding over two cents to last week's price. At $3.53 per gallon, diesel is $0.78 higher than last year at this time. Diesel prices were up across the country, with the biggest increase coming in Rocky Mountains where the average was more than five cents higher versus last week. The West Coast registered a gain of four cents on the week, while the Gulf Coast added more than three cents to diesel prices in the region. The East Coast saw diesel up two cents to $3.59 per gallon, led by New England with an average of $3.75 per gallon. Rounding out the regions, the Midwest notched a four-tenths-of-a-cent increase over last week.

Residential heating fuel prices increase
Residential heating oil prices continued to rise during the period ending February 14, 2011. The average residential heating oil price increased to $3.59 per gallon, $0.01 per gallon over last week and $0.73 per gallon more than last year at this time. Wholesale heating oil prices increased by under $0.02 per gallon last week, reaching a price shy of $2.83 per gallon. This is $0.82 per gallon higher than last year's price.

The average residential propane price increased by half a cent per gallon to reach a price just above $2.83 per gallon. This was an increase of $0.14 per gallon compared to the $2.69 per gallon average from the same period last year. Wholesale propane prices decreased a penny with the overall price at $1.40 per gallon. This was an increase of about $0.01 per gallon compared to the February 15, 2010 price of $1.39 per gallon.

Inventories of propane still declining
Last week, U.S. inventories of propane continued their seasonal descent as total stocks dropped 3.8 million barrels to end at 31.0 million barrels in total. The majority of the stock draw occurred in the Midwest region, which drew 2.6 million barrels. The Gulf Coast regional stocks fell by 1.2 million barrels and the Rocky Mountain/West Coast inventories fell by 0.1 million barrels. The East Coast region added 0.1 million barrels of propane. Propylene non-fuel use inventories represented 8.5 percent of total propane inventories.

Text from the previous editions of This Week In Petroleum is accessible through a link at the top right-hand corner of this page.