Residential heating oil prices fall while propane prices remain flat

At the start of the winter heating season, the retail price of home heating oil in the United States climbed rapidly, establishing a new record toward the beginning of November. The price of propane was slightly above the previous five-year (2017–2021) average at the beginning of the heating season. Since then, the price of home heating oil has fallen while the price of propane has remained flat.

After adjusting for inflation, the national average price for home heating oil was $4.73 per gallon (gal) on October 3, 2022, the beginning of the winter heating season. By November 7, the national average price had climbed to a record of $5.92/gal. Low distillate fuel inventories in the United States and tight supplies in the Atlantic Basin both contributed to the rapid price increase. Since November 7, home heating oil prices have fallen $1.32/gal (22%) to $4.60/gal as of January 23 (Figure 1). The decline in home heating oil prices is a result of lower crude oil prices, warmer-than-normal weather, and unseasonal distillate inventory growth. In addition, warm weather in Europe has likely eased some distillate demand in the Atlantic Basin.

Home heating oil prices in the Northeast (the region with the highest percentage of households that use home heating oil), averaged $5.97/gal on November 7, but fell to $4.62/gal as of January 23, according to our State Heating Oil and Propane Program (SHOPP) data. Prices in Maine, where 60% of households use home heating oil as their primary space heating fuel, fell from a record high for the state of $5.69/gal on November 7 to $4.40/gal as of January 23. Delaware had the highest price for home heating oil in our SHOPP data on January 23 at $5.24/gal, down from $6.16/gal on November 7.

Warmer-than-normal weather has reduced heating demand. According to the latest weekly data from the National Oceanic and Atmospheric Administration (NOAA), the United States has experienced 9% fewer heating degree days (measured from July 1 2022 through January 21, 2023) than normal. The latest monthly total degree day forecast from NOAA indicates that it expects warm weather to continue in February and March.

Brent crude oil prices fell from an average of $93 per barrel (b) in October 2022 to $75/b on January 4, 2023, reducing heating oil prices. Although crude oil prices have climbed since, reaching $88/b on January 23, prices remain below where they were at the beginning of the winter heating season.

In 2022, distillate inventories (which includes home heating oil) in the Northeast (PADDs 1A and 1B) had declined less than typically from September through October. Distillate inventories in the Northeast fell 1.8 million barrels from September 2 to October 28 compared with the previous five-year (2017–2021) average of 3.9 million barrels. Over the first three months of the winter heating season, distillate inventories in the Northeast increased by 5.7 million barrels, compared with the previous five-year average increase of 0.9 million barrels, putting downward pressure on heating oil prices (Figure 2). Following a cold weather front that moved across the nation in December 2022, distillate inventories declined in the beginning of 2023, falling from 21.3 million barrels on January 6 to 20.3 million barrels on January 20.

About 5% of all U.S. households use propane as their primary space heating fuel. The average U.S. residential price of propane was $2.71/gal as of January 23, 2023, $0.51/gal lower than at the same time last year and $0.05/gal higher than the week of October 3, 2022. In the Northeast (PADDs 1A and 1B) the residential price of propane was $3.42/gal, and in the Midwest (PADD 2) the price was $2.30/gal, as of January 23, 2023 (Figure 3).

Both strong U.S. propane production and warm weather have offset record propane exports, contributing to higher propane inventories and minimal price changes. Over the first 10 months of 2022, U.S. exports of propane averaged 1.4 million barrels per day (b/d), the most on record. Global demand for propane is elevated because of increasing demand for propane as a petrochemical feedstock in propane dehydrogenation (PDH) units and flexible feedstock crackers, as well as increased exports to Europe for winter heating. Despite record exports, both more production and less heating consumption have led to U.S. propane inventories remaining above the previous five-year average. As of January 20, U.S. propane inventories were 75.6 million barrels, up 40% from the same week last year and above the previous five-year average (Figure 4). The Gulf Coast (PADD 3), where most U.S. petrochemical consumption and export capacity for propane are located, accounts for about 47% of propane storage capacity. Propane inventories in the Gulf Coast are 30%, or 10.2 million barrels, above the previous five-year average. In the Midwest (PADD 2), where about 8% of U.S. households use propane as the primary space heating fuel, inventories are about 27%, or 4.6 million barrels, above the previous five-year average.

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