November 2013 • 19
EIA Publishes
Favorable Price Forecast
HEATING OIL MARKETERS GOT SOME GOOD
news last month when the U.S. Energy
Information Administration (EIA) predicted
that heating oil costs would drop this winter
while natural gas heating costs would rise.
EIA forecasted household heating costs
in its annual
Winter Fuels Outlook
, saying
that natural gas heat will cost 13 percent
more this winter if the weather plays out
according to the government’s winter
forecast. If the weather is 10 percent colder
than forecast, natural gas heat costs will rise
by 25 percent.
The
Winter Fuels Outlook
calls for
heating oil costs to decrease by 2 percent
if the government’s forecast is accurate.
A winter that is 10 percent warmer than
the base forecast would lead to a 13 percent
reduction in heating costs. A winter that is
10 percent colder than the forecast would
cause a 9 percent increase in heating costs.
The EIA predicts that propane heating
will cost 9 percent more this winter than
last winter. (The agency did not offer alter-
native pricing scenarios based on weather
variations for propane heating.)
NATURAL GAS SUPPLY CRUNCH
Natural gas costs in the Northeast region
are expected to rise more than national
average, with the average gas-heated house-
hold facing an 18 percent cost increase,
according to EIA. The region’s reliance on
natural gas for electricity generation has
increased from 30 percent to 52 percent
over the last 11 years.
“Increased gas use for power generation
has contributed to pipeline transportation
constraints in the New England regional
natural gas market,” EIA reports. “These
pipeline constraints are more pronounced
in winter months and contributed to
extreme spot price spikes in natural gas and
electricity prices in New England during
January and February 2013.
EIA is projecting the retail price of
heating oil to average $3.68 per gallon this
heating season (October 2013 to March
2014). This price would be 19 cents per
gallon lower than the average price during
the winter of 2012-13 and reflects EIA’s
lower price forecast for Brent crude oil.
This winter, EIA expects Brent crude oil to
average $105 per barrel ($2.50 per gallon)-
about $6 per barrel (14 cents per gallon)
lower than last winter.
As the energy industry’s
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WE GO BEYOND
THE NUMBERS
FOR YOU.
While U.S. distillate
production is high and
prices and expenditures
are expected to be
lower than last year, the
global supply-demand
balance for distillate
fuels has created a price
structure that has not
encouraged inventory
builds, according to EIA.
Strong demand abroad for distillate fuel,
particularly in Europe and Latin America,
resulted in record levels of U.S. exports
over the summer. That demand has pushed
up prompt prices for distillate futures
contracts, which have been traded at a
persistent premium to those for delivery
further in the future.
VOLATILITY RISK
For the week ending on September 27,
distillate inventories in the U.S. Northeast
were 29.4 million barrels, about 17.3 mil-
lion barrels (37 percent) below their five-
year average level, but only 0.9 million
barrels below the 2012 end-of-September
levels. Distillate inventories have his-
torically been used to meet normal winter
heating demand but are also an important
source of supply when demand surges as
a result of unexpected or extreme cold
spells. The low distillate inventories could
contribute to heating oil price volatility
this winter.
Fuel
