COLD WEATHER COULD CUT INTO HEATING FUEL INVENTORIES

LAKEWOOD, NJ (Opis Energy Group) -- October 1, 2001 -- Occasional bursts of "Indian Summer" weather notwithstanding, temperatures could hover at below-normal levels in the eastern half of the United States this fall and winter, contributing to a drawdown of heating oil and propane stocks that right now stand above year-ago levels.

Michael Schlacter, chief meteorologist with consulting firm Weather 2000, warns markets not to be fooled by variable weather over the next several weeks that could push temperatures along the Eastern Seaboard into the 70s in some instances.

"The polar air hasn't really generated itself yet over the northern reaches of the Canadian Rockies, but that's what's going to start filtering down this winter," Schlacter said. "Last year was a big wake-up call after three consecutive mild winter seasons, but this year we could see even more brutal conditions. Several things will come together into an all-star team of events to contribute to a classic winter season."

While the West Coast might see warmer-than-usual temperatures, below-normal temperatures will dominate the East Coast and will extend as far inland as the Great Plains during some periods but only as far as the Appalachians or the Mississippi River during other periods.

"The longevity and the consistency of cold air invasions will be greater than last year. Heating degree days (the accumulation of daily average temperatures below 65 degrees Fahrenheit) will be pretty significant -- probably exceeding last year's tallies for most northern locations," Schlacter said.

Just to jog some people's memories, Schlacter said residents of such burgs as Cincinnati and New York should expect a winter akin to those of 1995-96 and 1993-94. Not only will northern-tier cities like Minneapolis, Chicago and Detroit get hit by the cold, but unusually deep southern penetration could bring a significant number of heating degree days to places like Little Rock, Oklahoma City and Dallas.

Contributing to falling mercury in the Northeast will be snowfall, which Schlacter calls the "unsung hero" of cold weather sustainment since a nice snowpack will reflect the sun's heat back into the atmosphere. Thunderstorms forming in the southern plains will turn into rainstorms around Georgia and then snowstorms as they hit the colder air further north. And cold air sweeping over the Great Lakes in the coming months will lead to precipitation in the form of rain or snow in an area extending for hundreds of square miles, with New York City included in that radius.

The cooler fall and winter could give some support to propane and heating oil prices that right now are under some downward pressure because of high inventory levels. While the year-on-year inventory build is significantly greater in the case of propane, heating oil inventories could shoot up as refiners rein in jet fuel production in the wake of declining air travel stemming from last month's terrorist attack.

As of August 31, U.S. propane inventories stood at an estimated 67.5 million bbls -- 9.8 million bbls higher than a year ago and the highest level for end-August since 1998. Midwest inventories rose to within the average range for the first time since November 2000, and Gulf Coast inventories remained well above the average range. The Energy Information Administration has not yet released propane statistics for September.

Meanwhile, last week's API statistics showed PADD 1 high sulfur distillate stocks at 31.6 million bbls, or 7.7 million bbls higher than a year ago.

- Brad Addington (baddington@opisnet.com)

Copyright 2001, Oil Price Information Service.



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