In its December Short Term Energy Outlook (STEO), the US Energy Information Administration (EIA) expects that average heating oil expenditures by households that use oil as their primary heating fuel during the 2014 – 2015 winter will be 27% (US$632) below last winter’s expenditures. Heating oil prices have declined with crude oil prices, and EIA expects US heating oil prices to average US$3.09/gal. this winter, 20% lower than last winter, and 15% lower than expected in the October Winter Fuels Outlook.
Data from the National Weather Service shows that November 2014 was 18% colder than the 10 year average for the entire US. Colder weather typically translates into increased consumption of heating fuels and higher space heating expenditures. However, because the National Weather Service still expects the balance of the winter to be milder than last year, with temperatures ranging from 11% to 16% warmer for the Northeast (PADDs 1A and 1B), Midwest, and South, total consumption is not expected to be higher.
In the EIA’s Winter Fuels Outlook, heating oil consumption in the Northeast was expected to average 10% less than last year. In the December STEO, Northeast heating oil consumption was revised slightly higher, but will average 8% lower than last winter.
The decline in expected expenditures for heating oil between EIA’s October and December STEOs is tied to lower crude oil prices. Monthly average Brent crude oil prices have decline 29% from their 2014 high of US$112/bbl in June to an average of US$79/bbl in November. EIA expects Brent prices to average US$78/bbl in the fourth quarter this year, compared to US$109/bbl for the same time last year. In the October STEO, Brent prices were expected to average US$98/bbl in fourth quarter 2014. The US$20/bbl downward revision to crude oil prices causes lower prices for petroleum products which are used as heating fuels, mainly heating oil.
Total distillate inventories in the Northeast, although well below the five year average, are in line with inventory levels in recent years. In general, the global supply demand balance for distillate fuels has created a price structure in the futures market that does not encourage building inventory even in advance of the increased demand in the winter months. Although relatively low inventory levels can contribute to price volatility, the Northeast is located in the actively traded Atlantic Basin market from which distillate fuel is imported during periods of high demand.
Consumption of heating oil for space heating is concentrated in the Northeast, where approximately 24% of households depend on the fuel, compared to only 5% of households nationwide. However, the expectation of reduced expenditures compared to last winter generally holds true for other fuels and regions, but does vary. About one half of US households use natural gas as their primary heating fuel, and EIA currently expects households heating with natural gas to spend an average of US$31 (5%) less this winter than last winter. An additional 39% of US homes rely primarily on electricity as their primary heating fuel, and those expenditures are expected to be about the same as last year. Roughly 5% of US households use propane for space heating, and expenditures are expected to be 20% lower than last year in the Northeast and 33% lower in the Midwest.
The outlook for average household winter fuel expenditures discussed above provide a broad guide to changes compared with last winter. However, fuel expenditures for each individual household are highly dependent on local weather conditions, market size, the size and energy efficiency of individual homes and their heating equipment, and thermostat settings.
Adapted from a press release by Emma McAleavey.
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