Heating oil prices have increased while propane prices have stayed flat amid warm start to winter

Temperatures in the United States over the first six weeks of the winter heating season (October through March) have been warmer than average, based on data from the National Oceanic Atmospheric Administration. Nonetheless, residential heating oil prices have increased in recent weeks (Figure 1) and, according to our Heating Oil and Propane Update (HOPU), reached a record-high of $5.91 per gallon (gal) the week of November 7 (data going back to October 1, 1990), after adjusting for inflation. Prices in the Central Atlantic region were the highest on November 7, averaging $6.01/gal, while prices in New England were $5.89/gal. High heating oil prices in the Northeast (Central Atlantic and New England combined) are being driven by low supply (inventories, imports, and regional refining capacity) and strong demand. Unlike heating oil, residential propane prices are essentially unchanged from last year (nominally) and slightly lower when adjusting for inflation. Weekly U.S. residential propane prices averaged $2.67/gal from October 3 through November 7, down 2 cents from the same period last year.

Customers in the Northeast, and in particular New England, use heating oil more than in any other region. According to the U.S. Census Bureau's 2020 American Community Survey (2021 estimates), about 18% of households in the Northeast and 33% of households in New England use heating oil as a primary space heating fuel.

At the beginning of 2022, U.S. distillate inventories were 7% below the previous five-year (2017-21) low for that time of year, and Northeast inventories were 8% below the previous five-year low. In the first five months of the year, distillate inventories in the Northeast fell, reaching a low of 11.4 million barrels on May 20, 41% below the previous five-year low. They then increased somewhat, reaching 15.2 million barrels on November 4, but remained 37% below the previous five-year minimum. U.S. distillate inventories have been relatively higher and were 11% below the previous five-year minimum on November 4 (Figure 2).

Although refineries on the East Coast are running near their capacity, regional refining capacity has fallen in recent years. In 2019, the largest refinery in the East Coast, Philadelphia Energy Solutions refinery, was shut down permanently following a fire. In 2020, the Come-by-Chance refinery in Newfoundland, Canada, which was a source of imported fuels for the Northeast, closed to convert to a refinery that produces renewable fuels. The decline in regional refining capacity means that the Northeast needs to receive more shipments from other regions of the United States or import from other countries.

Between January and August (the latest monthly data available), East Coast imports of distillate fuel averaged 156,000 barrels per day (b/d), down 38% from an average of 250,000 b/d over the same period in 2021. Although East Coast imports of distillate typically decline in the spring and summer, between February and April 2022, East Coast imports of distillate fuel fell by 267,000 b/d to 94,000 b/d, the largest drop over that time period since 2001. Based on weekly data that we used to estimate more recent monthly data, October imports fell at a time when the previous five-year average increased (Figure 3). Tight Atlantic Basin markets (driven at least in part by Russia's full-scale invasion of Ukraine and the subsequent government sanctions and choices of private companies) may limit the East Coast's ability to significantly increase imports in the coming months.

Demand in the United States for distillate fuel, as measured by product supplied, fell to an annual low of 3.4 million b/d (based on the four-week moving average) the week of September 16. We do not track weekly demand on a regional basis; however, the East Coast historically averages more than 30% of U.S. demand, and significant trends on a national level will likely reflect trends on the East Coast. Since September 16, distillate demand has increased, climbing to 4.1 million b/d the week of November 4, slightly more than at the same time last year.

The average U.S. residential price of propane was $2.68/gal as of November 7, 2022, slightly below last year's price at the same time. Over the first eight months of the year, U.S. exports of propane averaged 1.4 million b/d, the highest level on record. Exports will likely remain high this winter because of demand for propane as a petrochemical feedstock as well as more exports to Europe for winter heating. Despite record-high exports, U.S. propane inventories increased steadily after hitting an annual low of 33.3 million barrels on March 11. As of November 4, U.S. propane inventories were 87.7 million barrels, up 17% from the same week last year and above the previous five-year (2017-21) average. Although U.S. propane inventories are higher than average, they are below average in the Midwest (Figure 4), where 8% of households use propane as a home-heating fuel.

The HOPU is published as part of the State Heating Oil and Propane Program (SHOPP), a joint effort between EIA and several state energy offices to collect state-level residential heating oil and propane price data from October through March in states where heating oil and propane use is common. SHOPP collects both residential heating oil and propane prices for 21 states, only propane prices in 18 additional states, and only heating oil prices in the District of Columbia.

The HOPU also publishes wholesale heating oil and propane prices for 26 states. We publish price data in the HOPU each Wednesday at 1:00 p.m. eastern time from the first week of October through the last week of March on the Winter Heating Fuels and Heating Oil and Propane Update web pages.

For questions about This Week in Petroleum, contact the Petroleum and Liquid Fuels Markets Team at 202-586-5840.

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