EIA Outlook for U.S. Heating Fuels State Heating Oil and Propane Program Conference North Falmouth,...

EIA Outlook for U.S. Heating Fuels

State Heating Oil and Propane Program Conference

North Falmouth, Massachusetts

Laurie Falter

Industry Economist

Energy Information Administration

August 7, 2006

Over the next year…

• Tight upstream and downstream refining capacity means there will be little slack in the supply lines if there is a supply disruption.

• As a result, geopolitical concerns (Iran, Nigeria, Israel-Lebanon, Venezuela, Iraq) will continue to worry the market.

• At this early juncture, it appears that fuel supplies should remain adequate for the coming winter, but prices will be high.

• Global and domestic demand will remain strong, continuing to grow despite high prices.

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100

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Forecast

West Texas Intermediate Crude Oil Price (Base Case and 95% Confidence Interval)

Crude Oil Prices Likely to Remain Above $70 Through 2006

Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.

U.S. Crude Inventories Expected to be on High End of Normal Range, but with Lower Forward Cover

260

280

300

320

340

360

Jan-98

Jan-99

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NOTE: Colored band is the normal inventory range.

U.S. Crude Oil Inventories & Forward CoverForecast

Sources: EIA, Short-Term Energy Outlook, July 2006

History

Mill

ion

Ba

rre

ls

Crude Oil OutlookConclusions

• U.S. and global oil inventories look high, but on a forward cover basis, they are not as robust.

• WTI prices expected to stay strong due to fundamentals and limited spare capacity

• There is potential for price spikes due to supply disruptions caused by events such as hurricane damage or geopolitical strife.

• U.S. Gulf Coast infrastructure is still recovering from Hurricanes Katrina and Rita, with some capacity still off-line.

Winter Crude Oil and Distillate Price Outlook

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

$2.60

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

$/G

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Forecast


ResidentialHeating Oil

WholesaleDistillate

Crude Oil (WTI)

Distillate Winter Demand Expected to Continue to Grow

3000

3200

3400

3600

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5-Year Average2006-20072005-20062004-2005

U.S. Distillate Product Supplied


Distillate Production Ramps Up Ahead of Peak Demand Season

3000

3200

3400

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5-Year Average2006-20072005-20062004-2005

U.S. Distillate Production


Strong Crack Spreads Encourage High Refinery Production

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Gasoline

Heating Oil

Gulf Coast Products vs. WTI Crude Oil

Source: EIA calculations from Reuters spot prices.

Distillate Net Imports Should Be About Average Range This Winter

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5-Year Average2006-20072005-20062004-2005

U.S. Distillate Net Imports


Trans-Atlantic Arbitrage Usually Opens for Distillates by November

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Gasoline

Heating Oil

New York Harbor vs. Rotterdam

v

Source: EIA calculations from Reuters spot prices.

90

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140

150

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Jan-02

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U.S. Total Distillate Stocks & Forward Cover

Distillate Stocks Expected to be in Normal Range This Winter, But Forward Cover Will Decline


Actual Forecast

Forward Cover


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NOTE: Colored Band is Normal Stock Range

PADD 1A High-Sulfur Distillate Stocks

New England Heating Oil Inventories are Above Average through the End of July

Monthly

Source: Energy Information Administration.

Weekly

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PADD 1B High-Sulfur Distillate Stocks

Central Atlantic Heating Oil Inventories are also Above Average

Monthly

Source: Energy Information Administration.

Weekly

Consumer Prices and Expenditures – Heating Oil (Northeast)

2003-2004

2004-2005

2005-2006

2006-

2007

Actual Actual Actual Forecast (est.)

Consumption (gals.)

642 642 589 633

Average Price $1.46 $1.93 $2.44 $2.50

Expenditures $935 $1,237 $1,438 $1,580


Heating Oil OutlookConclusion

• Distillate stocks are expected to be on the high end of the normal range this winter.

• However, demand is expected to be strong, given normal temperatures, and forward cover will fall sooner and lower this year than the past year.

• Residential heating oil prices are expected to be about 6 cents per gallon higher this year than last year.

• Higher expected consumption and prices will boost expenditures by over $140 per household this winter.

Crude Oil, Natural Gas, and Propane Price Outlook

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$1.20

$1.40

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$1.80

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$/M

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Forecast


ResidentialPropane

Natural Gas (Wellhead)

Crude Oil (WTI)

U.S. Propane Stocks Expected to Remain in the Lower Half of the Average Range This Winter

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Actual Forecast

Source: EIA Short Term Energy Outlook, July 2006


East Coast Propane Stocks Expected to be Relatively Comfortable this Winter

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Actual Forecast

NOTE: Colored band is the normal inventory range.Source: EIA Short Term Energy Outlook, July 2006

Midwest Propane Stocks Expected to be at or Above the Average Range this Winter

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Actual Forecast


Gulf Coast Propane Stocks Expected to Remain Low this Winter

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Actual Forecast


Consumer Prices and Expenditures – Propane (Midwest)

2003-2004

2004-2005

2005-2006

2006-2007

Actual Actual Actual Forecast (est.)

Consumption (gals.)

796 787 749 807

Average Price $1.20 $1.42 $1.67 $1.73

Expenditures $951 $1,114 $1,247 $1,395


Propane OutlookConclusion

• U.S. inventories likely to remain in the middle of the historic average range, although regionally the situation is mixed

• Propane prices are expected to be about 6 cents/gallon higher this winter

• Residential consumption is expected to be somewhat higher than last winter, given normal temperatures

• Higher expected consumption and prices will boost expenditures by almost $150 per household this winter.

Crude Oil and Gasoline Price Outlook

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$3.50

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

$/G

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Forecast

Regular Gasoline

WholesaleGasoline

Crude Oil (WTI)


180

190

200

210

220

230

240

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U.S. Total Gasoline InventoriesForward Cover (right axis)

Inventories (left axis)

U.S. Gasoline Inventories Are Typical, But Demand Growth Puts Forward Cover Relatively Lower

Source: EIA, Short Term Energy Outlook, July 2006.Source: EIA, Short Term Energy Outlook, July .

Gasoline OutlookConclusion

• U.S. inventories are expected to be on the high end of the historic average range, with forward cover about the same as last winter

• Gasoline prices should soften this winter when demand is normally lower

• Strong crude oil prices will put a floor under gasoline prices

Laurie Falter

Energy Information Administration

Office of Oil & Gas, Petroleum Division

[email protected]

(202) 586-1805

http://www.eia.doe.gov/

EIA Outlook for U.S. Heating Fuels State Heating Oil and Propane Program Conference North Falmouth,...

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