Cold weather hasn’t hit the Northeast very hard yet, but record heating-oil prices mean high heating bills are on the way for many residents.
About eight million U.S. households — largely in New England and the Central Atlantic states — rely on heating oil to run their furnaces each winter. Recently, heating-oil futures hit record levels, up more than 40 percent since the start of the year. Crude oil prices have leaped within hailing distance of $100 a barrel.
Weather forecasters are predicting a colder winter than last year, despite the unseasonably warm October in the Northeast. That’s going to lift heating costs no matter what fuel a homeowner uses.
Consumers who use heating oil, though, will feel the most pain. Their winter heating bill for the season is expected to average $1,785, compared with $891 for households that use natural gas, according to the Department of Energy. Unlike crude oil, natural-gas prices have been relatively restrained.
Heating-oil prices are soaring because the fuel is refined from crude oil, which also has hit record prices in recent weeks. Political unrest in places like Nigeria and Iraq, combined with Wall Street investors placing financial bets on higher energy prices, have lifted crude prices more than 40 percent since the beginning of the year. It is up nearly 60 percent from last year at this time.
Analysts say that demand for heating oil so far has been lower than last year, and inventories are sufficient. But that hasn’t seemed to matter as crude prices keep mounting.
“The price consumers pay is a function of global conditions,” says Mark Wolfe, executive director of the National Energy Assistance Directors Association, a group that represents directors of state programs that help low-income consumers pay their energy bills. “If the Turks invade Iraq, suddenly your price goes up 50 percent.”
As recently as five years ago, heating oil cost just 75 cents a gallon in the spot market. But supplies of refined products have become historically tight, as economic growth in developing countries like China and India has absorbed extra capacity. Result: oil for home heating has risen about 300 percent.
For residents faced with a nasty heating-oil bill, the easiest way to save money is conservation. Lowering the thermostat at night or closing off rooms that aren’t being used can help. Consumers also can consider switching to a more energy-efficient furnace, taking advantage of state programs that offer subsidies for this purpose, says Wolfe. Combined, measures such as these could reduce heating-oil consumption by up to 30 percent, he says.
Shopping around for the best price can shave off additional dollars from the energy bill. Heating-oil prices vary from to supplier to supplier, sometimes by up to 30 cents a gallon, says Wolfe.
Many consumers have switched from heating oil to natural gas, but buying a new furnace or converting an old one can cost thousands of dollars.
Consumers can also protect themselves against a potential rise in coming months by signing a contract with their supplier to lock in current prices for the season. But that’s essentially a bet on the direction of heating-oil prices, which could backfire. Customers will pay a premium to dealers, who have to hedge themselves in case prices go up. And if prices drop, consumers will be stuck paying the higher prices they locked in.
