Winter Heating Costs: How Hard a Hit?

With winter right around the corner, there is likely to be some concern about heating bills. With that in mind, let's take a look at commodity prices to see what may be in store for the average consumer.

Front Month Heating Oil Monthly Chart



January Heating Oil Future




Front Month Natural Gas Monthly Chart



January Natural Gas



Front Month Gasoline Chart



January Gasoline Chart



Charts courtesy of Barchart.

I picked January to plot as that is typically the coldest month. The monthly charts are continuous charts heading back to 1999 for comparative purposes.

What was shaping up to be a veritable disaster last summer now appears quite different. From here on out, simple supply / demand fundamentals (primarily weather conditions) will shape what is in store for heating oil and natural gas prices.

Note the dramatic change from mid-summer. Those mid-summer futures prices for January contracts simply were not based on fundamentals but rather speculation, in my opinion.

Depending on weather conditions and supply disruptions, and assuming you did not lock in prices out of fear earlier this year, heating oil and natural gas bills, as well as the cost to fill up your car may be lower than they were last year. That is good news for cash strapped consumers.

Gasoline Prices Plunge Most On Record

Cars.Com is reporting Gasoline Takes Biggest Weekly Dive Ever.

Turns out, 33 cents in one week is the biggest price drop in the history of anyone paying attention to the national average price of a gallon of gas. Currently, the national average price is $3.12, according to AAA. With the price of oil below $80 a barrel, this price could come down even more over the next few weeks, bringing $3 gas back into sight.

Even at $3.12, though, gas prices are probably the one part of the economy people don’t need to sweat right now. However, car-buying trends still point to a decline in large SUV sales and an uptick in sales of efficient vehicles.

The Baltimore Sun is reporting Average price of gas in area drops below $3 per gallon.

What many Baltimore-area drivers have been experiencing this week is now official: The average price of gasoline is under $3.

AAA Mid-Atlantic today reported that the average price of regular gas in the Baltimore region dropped to $2.97 from $3.02 Thursday. The statewide average, propped up by higher prices in the Washington suburbs, remains barely above the 3-buck line at $3.01. If current trends continue, that average would slip below $3 this weekend.

The average price of gasoline in Baltimore reached a peak of $4.03 on June 19. But falling crude oil prices have brought a dramatic decline in the price at the pump over the last few months.

The region's prices remain above their levels of a year ago, when they stood at $2.66.

Year over year energy comparisons are now very favorable. If prices head lower or even simply stabilize, winter energy costs and gasoline prices will be lower than last year. Also note that year over year comparisons in the CPI look easy to beat in the months ahead. I expect to see the CPI sporting negative numbers (falling prices) in the months ahead.

Comments

[3arthling:]

Mr. Shedlock has revoked permission for SeekingAlpha to use his material. Please see:

globaleconomicanalysis...

Peace,

2008 Oct 18 02:20 PM

[PastTense:]

"assuming you did not lock in prices out of fear earlier this year"

I think it is standard behavior for most consumers to lock in prices when vendors offer contracts in the July-August period, so I think a lot more people will be affected by high prices than the OP suggests.

I also think a lot of vendors have not lowered their rates, since they already purchased the products at high prices. I contacted my propane supplier; they were offering the same spot rates as the contract rates they were offering in July.

2008 Oct 18 04:18 PM

[icandoitdon:]

i agree with past tense.

as for the effect of lower gasoline prices, it still costs me twice as much to fill up my car as it did 3 years ago. i take no pleasure in the fact that it might have cost me 4x as much had the credit system not crashed.

2008 Oct 19 01:14 AM

[whisperonth...:]

Gas is under $2.80 in my area (and we have one of the highest gas taxes of all the states). Makes driving a small car even nicer.

2008 Oct 19 08:34 AM

[Urbane Gori...:]

Hmmm ... We're still at $3.45 a gallon here in the foothills of California. Probably 5 cents cheaper in the next town over, but probably 15 cents cheaper than S.F..... Maybe I'll drive over to wherever you are to fill up...

jegan ;-)

Disclosure : Long UNG

2008 Oct 19 06:21 PM

[billp37:]

Not one of us knows what may happen to natural gas prices this winter. Or gas or diesel prices.

All of us can be assured that if we invest based on our predictions, then we are likely to lose money.

We speculate that markets are manipulated.

Like manipulation of crypto gear.

www.google.com/search?...

2008 Oct 19 07:49 PM

[January Thaw:]

kero is not being reduced in this area...the price of oil has little to do
with the cost of heating oil any more...there are many factors that go
into that mix.

2008 Oct 19 11:29 PM

[kennyjoede:]

When will UNG be @ 47?

2008 Oct 20 06:51 PM