Mild temperatures have tempered heating oil demand but high prices mean residential fuel oil expenditure is tipped to hit record highs this winter. (image: zimbio.com)
Despite much of the country experiencing its fourth warmest winter on record, residential heating oil expenditure is still tipped to hit record highs this winter, giving little reprieve to struggling homeowners.
It its weekly petroleum report, the US Energy Information Administration said Thursday the average household is forecast to spend $2326 heating their home with fuel oil this winter. That’s slightly higher than the previous record high - $2300 posted last winter.
“The primary driver for this winter’s high heating oil expenditures has been heating oil prices, not consumption,” the EIA report says.
The heating season runs from October through March. At the start of winter, the EIA predicted the average home would spend a record $2500 on winter heating oil costs. But as the mild winter progressed and domestic heating oil use plateaued, officials revised the average expenditure figure down by $110 in January and lower still in its latest forecast.
“While unseasonably warm weather has continued (January 2012 was about 19 percent warmer-than-normal in the Northeast), winter heating oil expenditures for the average household are nevertheless likely to remain the highest on record due to continued seasonal record high heating oil prices,” the EIA report says.
About 6 percent of US homes rely on heating oil as their primary source of warmth, with about 80 percent of them in the Northeast.
The EIA says 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.
Fears the closure of three Philadelphia refineries will lead to heating oil shortages have also sent fuel oil prices heading north and sparked calls for a congressional hearing into the potential effect on energy consumers.
But strong international demand for distillate fuels, which include heating oil and diesel, is also singled out by the EIA.
“Although heating oil has been declining as a share of total distillate consumption, global diesel fuel demand has been growing and will likely continue to grow, assuming strong economic activity in developing countries such as China, India, and Brazil,” the report says. “EIA’s expectation of increasing global petroleum demand, especially transportation fuels, over the next few years results not only in high world oil prices in general, but also in rising distillate prices in particular.”
The report finishes with further gloom for heating oil customers. This month’s Short Term Energy Outlook predicts average retail heating oil prices next winter will hit $3.97 a gallon –15 cents a gallon higher than the current projection for this winter.