Home Heating Costs Cut By Weather, Low Oil Prices

News
A combination of warmer-than-expected temperatures and lower-than-expected oil prices have contributed to a reduction in forecast average heating expenditures this winter compared to the Energy Information Administration’s (EIA) forecast in its October 2015 “Winter Fuels Outlook.” Winter 2015-2016, October through March, was initially expected to have lower temperatures than winter 2014-2015. But in the time since the October outlook was released, the weather has been much warmer than expected and prices have fallen faster than anticipated, resulting in even lower heating expenditures.

According to EIA’s January “Short-Term Energy Outlook,” the eastern part of the U.S. and Midwest are expected to be roughly 20% warmer than last winter. At the beginning of this winter, the Northeast and Midwest were expected to be 13% and 11% warmer than last winter, respectively. However, January is typically the coldest month of winter, and if January turns out to be significantly colder than forecast, averages for the whole winter will move closer to normal, notes the agency.

At the national level, as of the National Oceanic and Atmospheric Administration’s December forecast, winter 2015-2016 is expected to be 15% warmer than last winter as the warm temperatures east of the Rocky Mountains are partially offset by temperatures in the West that are both slightly colder than previously forecast and colder than last year’s relatively warm winter. In addition to the warm weather, falling crude oil prices and ample supplies of distillate fuel and propane have contributed to lower retail fuel prices than forecast in October.

EIA reports that fueloil prices, in particular, have been weak, with the average winter 2015-2016 retail price now expected to be 217.0 cents/gal., down from a forecast 257.0 cents in October. Last winter, retail fueloil prices averaged 304.0 cents. As a result of the price drop, the average household that heats primarily with fueloil is expected to spend $760, or 41%, less on fuel this winter than last winter. The agency explains that Brent crude oil prices are the main driver of retail heating oil prices, and Brent prices fell from a monthly average of $48/bbl in October to an average of $31/bbl through the first 20 days of January. That $17/bbl price decline is equivalent to about 40.0 cents/gal. Further, strong supply and weak demand globally for distillate fuel, a category that includes products such as diesel and fueloil, have reduced refining margins and also contributed to low prices.

Retail propane prices have also been lower than forecast in the October “Short-Term Energy Outlook.” EIA now forecasts winter 2015-2016 propane prices to average 273.0 cents/gal. in the Northeast and 156.0 cents in the Midwest, down 12 cents and 10 cents, respectively, from projections at the beginning of winter. These prices are also lower than last winter. EIA comments that propane prices did not fall as rapidly as fueloil this winter because propane prices are partially tied to natural gas prices, which have declined but by less than oil prices. The link to natural gas prices occurs because a significant amount of propane is produced at natural gas processing plants and because propane competes in the petrochemical feedstock market with other hydrocarbon gas liquids produced at processing plants. EIA now forecasts that households that heat primarily with propane will, on average, see heating expenditures fall by $540, or 24%, in the Northeast and by $480, or 31%, in the Midwest compared to last winter.

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