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FUELS 18 OCTOBER 2015 | FUEL OIL NEWS | www.fueloilnews.com the characteristics of the energy field is that when prices turn, they really turn. I don't think we're done. I think that we will see some effort at consolidation and maybe a decrease, but we certainly anticipate that prices will continue to move higher. What we're seeing so far is a matter of short cover- ing, which means the amount contracts—open interest—are diminishing. I expect to see that start to kick up and when we do prices are going to move a little bit higher. But there does seem to be a top on it now, and that's probably the big- gest news." That news does come with a practical downside beyond strictly industry and fuel customer concerns. "When their [OPEC] national budgets get tight that leads to regional instability, and that cannot be good," Levine said. "The bot- tom line is we will pay for regional instability one way or another, either through higher crude prices or greater human misery." DISTILLATES According to EIA, heating oil is currently trading (as this article is compiled) at approximately $1.6 per gallon. In its latest STEO EIA anticipates an average retail price of $2.65 in 2016. On-highway diesel is currently retailing at about $2.50 per gallon and EIA anticipates an average retail price of $2.77 in 2016. Where refined products are concerned the story seems to be abundant supplies, and more where that came from. "Inventory is 22% above a year ago, and with the ultralow sulfur standard for heating oil it's really hard to separate that out from diesel, Milne said. "Diesel is now at the highest sup- ply level since October 2011 and we are still going to build, so you should have ample supply that is going to buffer any sort of dramatic price increase. What's going to happen is refiners have been really sucking down a lot of crude because we have restrictions on exports, so it's going to go right into storage tanks unless you see production shut-ins. I think what's going to happen is sometime in October, and tim- ing is incredibly difficult, we could see crude inventory start building and that pressures the price [downward] even as the products starts drawing down. He did note there might be an uptick during the fall refin- ery maintenance season. The demand side is also playing a role by underperform- ing. Milne noted that diesel and heating oil have been a bit of a laggard in prices in the face of demand issues. "Even though we had a big revision in the GDP number, overall GDP has been relatively weak," Milne said. "If you look at the freight transportation service index it is just not growing." Diesel in the US is still used primarily in commer- cial and industry settings. While prices should rise somewhat, Levine noted that dealers and marketers shouldn't be too concerned—or too complacent. "I think heating oil prices will go a little bit higher," he said. "But, a lot of the competition that has gone to natural gas has been ameliorated. The price advantage held by gas, while still substantial, is not at the level where you're going to see a tremendous amount of pressure on heating oil as long as the situation remains more or less the same. We're also seeing in the current environment a lot of fixed- price business. Everybody's arguing how much lower can it go? I might add this also has me a little nervous. I do think it's somewhat safer to offer fixed-price, but if you do I insist you provide some degree of protection against it. And calls remain inexpensive, even today." PROPANE For propane, the tale is much the same as other domestic fuels. "Last week we were just shy of the all-time inventory record for the United States, which was set in September 1976." Milne said. "Propane prices are so low we are talk- ing $0.40/gal (benchmark) or less. We're just swimming in propane and they are running out of locations to store it." He noted that uncertain variables include the status of the current crop drying season and an increase in exports as capacity to export continues to build out. The infrastructure issues present a few years ago still exist, but they have largely been worked around to where they should not amplify a problem. "A couple of years ago was really a perfect storm, and you did have strong demand from the agriculture sector for crop drying and you had an early cold winter and it just never relented and meanwhile some export facilities came online," said Milne. "They still are building out infrastructure, which is true everywhere. But I can't imagine seeing a situation comparable to what we had a couple years ago. There is just so much propane around now, unless you lose of pipeline or suffer an industrial accident." NATURAL GAS Natural gas is also in familiar territory, and similar to the other fuels where supply and demand are concerned. "We're looking at supply being more than 18% above year ago which is pretty bearish, and were even over the five-year average, so right now there is nearly 3.1 trillion cubic feet in storage," said Milne. "So that's plenty of supply and that's going to keep on building. But until you get some serious cold it's going to be difficult to see that number move higher, and in fact it traded at a four-month low earlier this week. That supply is going to drown out any sort of attempt at rallying prices outside of logistical issue, which can happen, but any- thing like that would be temporary." The latest STEO predicts average spot prices to remain lower than $3/MMBtu through November, and the Henry Hub natural gas price to average $2.84/MMBtu in 2015 and $3.11/MMBtu in 2016. GASOLINE According to EIA, regular gasoline is retailing at about $2.40/