EIA: Household Costs for Fuel to Increase This Winter

The Energy Information Administration (EIA) said in late January 2018 that it expects U.S. average household expenditures for fueloil and propane will be higher this winter. Compared with last year, higher crude oil prices and lower inventory levels are putting upward pressure on prices for heating fuels, the agency said. In addition, forecasts for a colder winter than last year, which was one of the warmest on record for much of the U.S., are expected to increase heating fuel consumption.

As a result of higher prices and higher consumption, EIA expects average household expenditures for fueloil and propane to rise from last year’s levels. Temperatures this winter, based on the forecast of heating degree days from the National Oceanic and Atmospheric Administration (NOAA), are expected to be colder than last winter with about 10% more heating degree days. Nevertheless, this winter is expected to be slightly warmer than normal with 2% fewer heating degree days than the 10-year average.

Increases in EIA’s projected household expenditures on propane vary by region. The agency expects that households heating with propane in the Northeast will spend an average of $2246 this winter, $256, or 13%, more than last winter. These increased expenditures combine a 6% increase in consumption and a 7% increase in the fuel price. EIA expects households heating with propane in the Midwest will spend $1466 on average, $291, or 25%, more than last winter, reflecting 12% increases in both propane prices and consumption.

U.S. propane inventories at the beginning of October 2017 were at 78.9 MMbbl, 25 MMbbl below inventories at the beginning of last winter. As of Jan. 19, 2018, inventories were 54 MMbbl, 14.2 MMbbl below the same time last year. The Midwest, which is the region most reliant on propane for heating and agricultural purposes, began this winter with stocks slightly below last year’s levels. Strong global demand for propane has provided export opportunities, and weekly U.S. exports, based on a four-week average, have exceeded last year’s volumes in 11 of the 15 weeks so far this winter.

U.S. total distillate inventories, which include all sulfur levels of distillate, for the winter heating season (October through March) were 23 MMbbl, or 15%, below 2016 inventories at the beginning of October and remained nearly 30 MMbbl, or 18%, under 2017 levels as of January 12. Since October 2017, U.S. winter stocks of ultra-low-sulfur diesel (ULSD) have remained between 12% and 16% below the previous year’s inventory levels for the same period.

The continued transition to the use of ULSD for heating has increased the relevance of assessing ULSD inventories for heating fuels. Reliance on fueloil is highest in the Northeast—Petroleum Administration for Defense (PADD) 1—where about 21% of households in the region use it for space heating. ULSD inventory levels in the region were nearly 49% below 2017 levels as of Jan. 19, and total distillate inventory levels were nearly 34% below last year’s levels.

Strong exports of distillates, some of which can be used as home heating oil, are contributing to lower inventories. Since the beginning of October 2017, exports, based on a four-week moving average, have exceeded those during the same time last winter 13 out of 15 weeks. U.S. demand for distillate remained relatively stable in 2017 through October, with EIA’s proxy for demand, product supplied, fluctuating between 2% lower than, and 6% higher than, 2016 levels.

Higher crude oil prices are also contributing to heating fuel price increases. The Brent crude oil price is the most influential oil price in determining U.S. petroleum product prices. For the week ending Jan. 12, the Brent crude price was $69.47/bbl, more than $15/bbl higher than the same time last year. EIA forecasts that the price of Brent will average $61/bbl this winter, which is more than $9/bbl higher than last winter.

As of Jan. 15, the U.S. average residential retail fueloil price was 321.0 cents/gal., 58 cents higher than the same time last year. EIA forecasts that the price for fueloil in the 2017-2018 winter season will average 279.0 cents/gal., 40 cents higher than the previous year. Consumption per household is forecast to increase 7% to 553 gallons. As a result of both higher forecast prices and consumption, EIA expects households that heat primarily with fueloil will spend an average of $1570 this winter, $323 more than last winter.

(SOURCE: The Weekly Propane Newsletter, February 5, 2018)