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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.
0102030405060708090
100
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Do
llar
s p
er B
arre
l
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
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
0
5
10
15
20
25
Day
s o
f F
orw
ard
Co
ver
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
allo
n
Forecast
Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.
ResidentialHeating Oil
WholesaleDistillate
Crude Oil (WTI)
Distillate Winter Demand Expected to Continue to Grow
3000
3200
3400
3600
3800
4000
4200
4400
4600J
ul
Au
g
Se
p
Oc
t
No
v
De
c
Ja
n
Fe
b
Ma
r
Ap
r
Ma
y
Ju
n
Th
ou
san
d B
arre
ls P
er D
ay
5-Year Average2006-20072005-20062004-2005
U.S. Distillate Product Supplied
Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.
Distillate Production Ramps Up Ahead of Peak Demand Season
3000
3200
3400
3600
3800
4000
4200
4400J
ul
Au
g
Se
p
Oc
t
No
v
De
c
Ja
n
Fe
b
Ma
r
Ap
r
Ma
y
Ju
n
Th
ou
san
d B
arre
ls P
er D
ay
5-Year Average2006-20072005-20062004-2005
U.S. Distillate Production
Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.
Strong Crack Spreads Encourage High Refinery Production
-20
0
20
40
60
80
100
120
140
1/4/
2002
5/4/
2002
9/4/
2002
1/4/
2003
5/4/
2003
9/4/
2003
1/4/
2004
5/4/
2004
9/4/
2004
1/4/
2005
5/4/
2005
9/4/
2005
1/4/
2006
5/4/
2006
Cen
ts p
er G
allo
n
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
0
50
100
150
200
250
300
350
400
450
500J
ul
Au
g
Se
p
Oc
t
No
v
De
c
Ja
n
Fe
b
Ma
r
Ap
r
Ma
y
Ju
n
Th
ou
san
d B
arre
ls P
er D
ay
5-Year Average2006-20072005-20062004-2005
U.S. Distillate Net Imports
Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.
Trans-Atlantic Arbitrage Usually Opens for Distillates by November
-20
-10
0
10
20
30
40
50
601/
4/20
02
4/4/
2002
7/4/
2002
10/4
/200
2
1/4/
2003
4/4/
2003
7/4/
2003
10/4
/200
3
1/4/
2004
4/4/
2004
7/4/
2004
10/4
/200
4
1/4/
2005
4/4/
2005
7/4/
2005
10/4
/200
5
1/4/
2006
4/4/
2006
7/4/
2006
Cen
ts p
er G
allo
n
Gasoline
Heating Oil
New York Harbor vs. Rotterdam
v
Source: EIA calculations from Reuters spot prices.
90
100
110
120
130
140
150
160
170
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Mil
lio
n B
arre
ls
0
5
10
15
20
25
30
35
40
Day
s o
f F
orw
ard
Co
ver
U.S. Total Distillate Stocks & Forward Cover
Distillate Stocks Expected to be in Normal Range This Winter, But Forward Cover Will Decline
Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.
Actual Forecast
Forward Cover
NOTE: Colored band is the normal inventory range.
0
2
4
6
8
10
12
14
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Mil
lio
n B
arr
els
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
0
5
10
15
20
25
30
35
40
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Mil
lio
n B
arr
els
NOTE: Colored Band is Normal Stock Range
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
Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.
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
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
$/G
allo
n
$0
$2
$4
$6
$8
$10
$12
$14
$/M
CF
Forecast
Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.
ResidentialPropane
Natural Gas (Wellhead)
Crude Oil (WTI)
U.S. Propane Stocks Expected to Remain in the Lower Half of the Average Range This Winter
0
10
20
30
40
50
60
70
80
90Ja
n-0
2
Jul-
02
Jan
-03
Jul-
03
Jan
-04
Jul-
04
Jan
-05
Jul-
05
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Mil
lio
n B
arre
ls
Actual Forecast
Source: EIA Short Term Energy Outlook, July 2006
NOTE: Colored band is the normal inventory range.
East Coast Propane Stocks Expected to be Relatively Comfortable this Winter
0
1
2
3
4
5
6
7
8Ja
n-0
2
Jul-
02
Jan
-03
Jul-
03
Jan
-04
Jul-
04
Jan
-05
Jul-
05
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Mil
lio
n B
arre
ls
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
0
5
10
15
20
25
30
35
40Ja
n-0
2
Jul-
02
Jan
-03
Jul-
03
Jan
-04
Jul-
04
Jan
-05
Jul-
05
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Mil
lio
n B
arre
ls
Actual Forecast
NOTE: Colored band is the normal inventory range.Source: EIA Short Term Energy Outlook, July 2006
Gulf Coast Propane Stocks Expected to Remain Low this Winter
0
5
10
15
20
25
30
35
40
45
50Ja
n-0
2
Jul-
02
Jan
-03
Jul-
03
Jan
-04
Jul-
04
Jan
-05
Jul-
05
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Mil
lio
n B
arre
ls
Actual Forecast
NOTE: Colored band is the normal inventory range.Source: EIA Short Term Energy Outlook, July 2006
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
Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.
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
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
$/G
allo
n
Forecast
Regular Gasoline
WholesaleGasoline
Crude Oil (WTI)
Sources: History: EIA; Projections: Short-Term Energy Outlook, July 2006.
180
190
200
210
220
230
240
Jan
-02
Jul-
02
Jan
-03
Jul-
03
Jan
-04
Jul-
04
Jan
-05
Jul-
05
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Mil
lio
n B
arre
ls
0
5
10
15
20
25
30
Day
s o
f F
orw
ard
Co
ver
NOTE: Colored Band is Normal Stock Range
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
(202) 586-1805
http://www.eia.doe.gov/