NEW YORK (MainStreet) — The rapid decline of crude oil prices recently is putting a downward pressure on heating bills this winter and will bring costs down 20% to 25%, said Bernard Weinstein, associate director of the Maguire Energy Institute at the Cox School of Business at Southern Methodist University in Dallas.“There will be significant savings,” he said. “This is a real bargain for consumers compared to prices five years ago. When crude oil prices goes down, the prices of refined fuels also decline.”
Expenditures for natural gas, heating oil, electricity and propane in American households will decrease this winter heating season from October 1 through March 31 compared with last winter, which was 11% colder than the previous ten-year average nationally, according to the Energy Information Administration. A decrease in both demand and prices means consumer households will spend 27% less in propane and 15% in heating oil costs, 5% in natural gas and 2% in electricity this winter.
Temperatures for this winter have been forecast to be warmer east of the Rocky Mountains with temperatures increasing 11% in the Northeast, 16% in the Midwest and 12% in the South, the EIA said. Forecast temperatures are 5% warmer than last winter in the West.
The differences between natural gas, heating oil and propane prices will “narrow this winter, with natural gas price 6% higher, heating oil price down 6% and propane 17% lower,” the report said.
Households in the U.S. use four primary sources of fuel to heat their homes – natural gas, propane, heating oil and electricity. Natural gas is predominately used in the Midwest with 31% who depend on it, 26% of homes in the West, 23% in South and 20% in Northeast. Propane costs are expected to decline because of both lower prices and consumption. The Midwest favors it with 37% of consumers who use it, 32% of the South, 16% in the West and 15% in the Northeast.
Winter electricity bill forecasts are lower in all regions compared with last winter despite higher prices. Electricity is the most popular fuel source in the South with 62% who utilize it, followed by 19% in the West, 12% in the Midwest and 7% in the Northeast.Heating fuel is consumed mostly in the Northeast and Midwest and homes throughout the U.S. still rely on wood as a source. Since heating oil prices are directly linked to the underlying commodity price, heating oil will continue to get cheaper compared to 2013, said Patrick Morris, CEO of New York-based HAGIN Investment Management.
“All refined products should be cheaper,” he said. “The price for oil is set locally by the suppliers, so I cannot say that the savings will be directly correlated to the oil price, but as the winter trudges on and people refill, there may be a significant decrease that consumers will notice.”
Most homes in the Northeast and Midwest have already filled their tanks, so there is going to be a significant time lag for consumers to see their heating fuel prices drop, Morris said.
“The heating oil tank generally gets filled before the heating season, so the tanks are probably full,” he said. “Consumers won't benefit unless there are multiple refills this season.”
Prices for both crude oil and the sources for heat have declined because global growth and demand have dipped, said Weinstein.
“Supply has been rising much faster than demand,” he said. “The market will adjust. The drop in gasoline prices has been a boost for consumers who now have more disposable income.”
--Written by Ellen Chang for MainStreet