A Look Back... Propane and Heating Oil Prices Soared

A Look Back...
Propane and Heating Oil Prices Soared

Heating oil prices began the 2004-2005 heating season about 50 percent higher than the previous three years.

Since 2002, the Nebraska Energy Office has participated in the State Heating Oil and Propane Program, a residential price survey. The survey for this heating season began on October 4, 2004, and concluded March 14, 2005.

Each year, the Energy Information Administration provides the Energy Office with a list of residential propane and heating oil distributors in Nebraska. Survey results were transmitted back to the Energy Information Administration which compiled, processed, and aggregated for each state's reported data, weighted and stratified against other data streams, to estimate each state's average price. The Nebraska Energy Office publishes the data in these reports: Average Residential Propane Prices, Average Wholesale Propane Prices, Average Residential Heating Oil Prices, and Average Wholesale Heating Oil Prices. The Energy Information Administration publishes the data in the following reports: Residential Propane Prices by Region and State, Wholesale Propane Prices by Region and State, Residential Heating Oil Prices by Region and State, and Wholesale Heating Oil Prices by Region and State.

Residential Heating Oil Prices Volatile
Heating oil prices began the 2004-2005 heating season 51 to 55 cents – about 50 percent – higher than the previous three years.

High crude oil and natural gas prices were major factors in propane's price increase.

The average price of heating oil was volatile throughout the season. Prices peaked at the end of October and again in March, rather than in January or February as is usual, possibly due to crude oil prices and a tight national inventory. The season high of $1.79 per gallon occurred on the fourth Monday of October with a close second on the second Monday in March with a price of $1.77. Toward the end of the heating season, prices began to climb again and were 15 cents, or 9 percent, higher than prices at the beginning of the season.

The average charge price for delivery of No. 2 heating oil, excluding taxes and cash discounts, in Nebraska for the 2004-2005 heating season was $1.63 per gallon. The season average leaped 49 cents higher than last season's average of $1.14 and was 44 cents more than the four-year average of $1.19 per gallon. The average price in October from 2001 to 2004 was $1.24. October of this season showed a huge leap in price from last October going from $1.15 to $1.70.

The last two seasons have shown huge leaps in propane's price from one October to the next.

The 2004-2005 heating season was the first season in which wholesale heating oil prices were surveyed for Nebraska by the Oil Price Information Service. A comparison between retail and wholesale prices revealed that the retail price ranged from $1.16 to $1.31 and the wholesale price ranged from $0.76 to $1.07.

Residential Propane Prices
The 2004-2005 heating season began with a propane price that was 23 cents higher than last year, 44 cents higher than two years, and 34 cents higher than three years ago. High crude oil and natural gas prices were major factors in this price increase. Although prices were much higher during the 2004-2005 heating season from prior seasons, prices were relatively stable throughout the winter due to the mild weather.

After increasing 15 cents in the first four weeks of the season, the average price of propane remained relatively flat, or stable, while dropping a cent or two each week. The season high of $1.31 per gallon occurred on the fourth Monday of October. The price increase was due to snowy weather and the expectation of winter temperatures. From that point on, the average propane price began moving downward closing out the heating season at $1.22 per gallon.

The average charge price for delivery of consumer grade propane, excluding taxes and cash discounts, in Nebraska for the 2004-2005 heating season was $1.24 per gallon. This was 27 cents higher than last season's average of $0.97 and 29 cents more than the four-year average of $0.95 per gallon. The average price for propane in October from 2001 to 2004 was $0.93. The last two seasons have shown huge leaps in price from one October to the next.

The Whys of Price Fluctuations
During the 2004/2005 heating season, Nebraska's propane prices were stable while heating oil prices leaped up, coasted down, and then fired back up. Various factors made an impact:

Regional distillate inventory, including heating oil, in the average range at the beginning of the heating season;

Regional propane storage goal of 25 million barrels not attained during the traditional build season (April through September) although close with 24.4 million barrels on October 1;
Strong propane imports;
High crude oil prices;
Continued high natural gas prices;
Oil refinery shutdowns due to planned maintenance and unexpected hazards;
Continued war with Iraq;
Strengthening economy;
Norwegian oil workers' strike;
China's increase in demand for oil;
Tropical Storm Bonnie and Hurricanes Charley, Frances, Ivan and Jeanne;
The fear of supply disruptions in Venezuela, Russia, Iraq and Nigeria due to Venezuela's political situation surrounding the recall election, the Russian government's troublesome relationship with its largest oil producer, Yukos, and the uncertainties surrounding terrorism in Iraq and Nigeria; and
Relatively normal winter temperatures (only 8 percent warmer than normal).

Of the factors that impact prices, weather continues to be the key wildcard each winter. The state had relatively normal winter temperatures since degree days indicated the weather to be warmer than normal by only 8 percent. The state had an estimated 5196 heating degree days from October to March compared to 5667 normal heating degree days during that period.

At the end of the survey period, the Energy office produces the State Heating Oil and Propane Program Annual Report. If you need additional information or have questions, please contact Doris Jansky, 402-471-3538.