Fuel Price Forecasting

The fall might have just begun but some are already thinking about the next season; specifically the cost of heating their homes during what has been predicted will be a rough winter.

Above-normal snowfall has been forecast for the Northeast this coming winter, according to AccuWeather.com. The website has reported that the biggest snowstorms could potentially hit in January and February.

According to the National Weather Service, there is an approximately 50-percent chance of a rough winter hitting the region.

Currently the price of crude oil, the stuff from which home heating oil is distilled, is in the $100-per-barrel range, but expected to drop. At the time of this writing the price for number-two home heating oil on Long Island was $4.20 per gallon, according to New York State Energy Research and Development Authority. The cost was $3.98 during the same period last year, a 5.4-percent uptick.

The U.S. Energy Information Administration reports that two main factors drive heating oil expenditure: temperature and price. And while temperatures have waned, heating oil is still commanding strong prices on world commodity markets for a number of reasons.

Volatile international crude oil prices play a big part. The current Iranian crisis over the Middle Eastern nation’s apparent bid for nuclear weapons has seen oil prices strengthen in recent months as sanctions spark fears of supply shortages. This has an immediate effect on the price of any refined petroleum product, such as gasoline, diesel or heating oil. Strong international demand for distillate fuels, which include heating oil and diesel, is also noted by the U.S. Energy Information Administration.

Market volatility has at least one local fuel supplier worried.

“I don’t like to think about it,” said Marshall Prado of Marshall & Sons, a home heating oil company in Montauk. “I don’t think it’s going to be good.”

“It is hard to tell where prices will be at the start of the heating season,” he continued. “Everything from the outcome of the Presidential election to world events could have an impact.”

So far there have been no giant spikes for other types of heating methods. Residential propane is up to about $3.20 per gallon, slightly less than last year’s cost. Natural gas prices have stayed low. The future cost of electricity has yet to be determined.

Natural gas prices, trading around $3-per-million British thermal units (BTUs), should remain low. The last time prices were under $3 was in September 2009 during the credit crisis. Current values are a far cry from the high of just over $13 set in the summer of 2008.

The combination of the credit crisis and resulting recession, plus improvements in technology and the high prices themselves, opened up previously untapped natural gas fields. The rise in supply has sent prices down. Investment bank Goldman Sachs revised its forecast for natural gas prices from $3.70 for 2012, down from a previous forecast of $4.25.

Fuel inventories, however, are only one factor when trying to forecast what kind of reaction to expect. Last season was one of the mildest on record—23 percent warmer than normal according to the Oil Heat Institute of Long Island, a Hauppauge-based trade association representing approximately 80 home heating oil companies.

But for those who heat their homes with oil, the big news is that New York has become the first state to mandate ultra-low sulfur fuel. This is heating oil with sulfur content of no more than 15 parts per million. The new blend is 99 percent cleaner than what’s been traditionally burned.

Known as low-sulfur diesel, it remains to be seen if there will be new costs associated with the improved fuel. So far New York State will demand the cleaner heating oil from refiners who don’t have to supply it to customers anywhere else. That could mean heating oil customers competing with diesel fuel customers for a special product may face a potential price increase.

The Long Island Power Authority has not yet issued a forecast for the price of electricity this season. But, according to spokesperson Mark Gross, many factors go into the cost. Generally, fuel prices account for about 50 percent of what it costs to produce electricity on Long Island, he said. State and local taxes can add 10 to 15 percent to the cost.

For consumers facing considerable financial hardship, public and private assistance may be available. Those who are unemployed, lower-income, disabled, senior citizens, veterans or active-duty military can contact their local fuel dealers to inquire about payment options. Additionally, there are federal and state energy assistance programs available.

Mr. Prado reported that there are simple things that East Enders can do now to keep costs down.

“I can’t emphasize enough that maintenance and upgrades can save a lot of money; getting your unit properly running is the easiest thing a homeowner can do to save money, regardless of the cost of fuel,” he said.