Forecast: Oil heat most expensive this winter
The coming winter might be the most expensive ever for Long Islanders who heat with oil.
If forecasts for colder weather and high energy prices are right, homeowners will pay more per gallon than last winter for heating oil -- and will use considerably more of it.
"Although nobody is going to be happy with the price, the real story for households this winter is the amount of oil they'll have to buy," said Tancred Lidderdale, an economist with the U.S. Department of Energy in Washington.
About two-thirds of Long Island homes are heated with oil and so are many businesses.
In the most recent state survey, on Tuesday, oil from full service dealers averaged $4.247 a gallon on Long Island. The average, from the state Energy Research and Development Authority, means a typical 200-gallon delivery would cost $849.40 -- about $70 more than at this time last year.
The underlying reason: high crude oil prices and growing world demand for "distillates" -- diesel and nearly-identical heating oil -- for transportation and industrial production. "Around the world, distillate inventories have been tight over the last couple of years and continue to be so," said Andy Lipow, president of Houston consulting company Lipow Oil Associates LLC. "That has been one of the main reasons for higher crude oil prices." The energy department said last week that U.S. heating oil and diesel inventories in the previous week were 22 percent below a year earlier.
Natural gas on Long Island has been a relative bargain in recent years. In September it cost the equivalent of oil at $2.80 a gallon, as calculated by National Grid, $2.926 as calculated by the Oil Heat Institute. Natural gas prices are down a fraction of a percent from a year ago, says National Grid.
So, not surprisingly, National Grid says conversions to gas rose by 9.4 percent to 7,391 in the fiscal year ended March 31. National Grid says the cost of converting from oil to gas runs from about $6,500 to $10,000.
Joe Cortese, 58, of Franklin Square, is a recent convert. He says a $660 bill in February for oil at $4.29 gallon pushed him over the edge. "I've had it with having to watch the price of oil go up and down every time someone has indigestion in the Middle East," he said in an email.
The energy department forecast Wednesday that heating oil customers would pay 19 percent more to stay warm this winter -- "higher than any previous winter," mostly because of anticipated cold weather.
Dire predictions at this time last year for the cost of heating with oil proved wrong, but only because mild temperatures reduced homeowners' costs for the season -- by about $900 on average as of the end of February, as calculated by the Oil Heat Institute of Long Island, a trade group.
Last December, January and February were the third warmest on Long Island since the National Weather Service began keeping records at MacArthur Airport in 1986. Only 4.4 inches of snow fell, less than a quarter of what is normal.
This winter isn't likely to be a repeat, said senior meteorologist Robert Smerbeck at private AccuWeather in State College, Pa. "I think, in general, we're going to be pretty average," he said. He's expecting colder temperatures and higher snowfall totals in this region because meteorological conditions will allow cold Canadian air and storms to drop southward into the U.S. Last year, he said, most of the bad weather passed north of the United States.
At Weather 2000, a private forecaster based in Manhattan, chief meteorologist Michael Schlacter draws the same conclusions from the meteorological tea leaves. "We don't think we're going to have another snowless and super warm winter season," he said, "and there's also nothing to stop this from being colder or snowier than normal."
Heating oil averaged $3.887 last year when the heating season began. But that figure rose to $4.26 by the end of March as international tensions pushed crude oil prices to more than $100 a barrel. This year, said Lidderdale of the energy department, "We expect [the price] to be very close on average to last year's level."
Petroleum analyst Carl Larry, president of Oil Outlooks and Opinions LLC, a consulting firm in Irvington, N.Y., sees supplies improving by the time the coldest weather arrives. By then, the Trainer, Pa., refinery that Delta Air Lines bought from ConocoPhillips earlier this year is expected to be fully operational, refineries in Louisiana closed by Hurricane Isaac are expected to be recovered, and seasonal maintenance of refineries should be complete.
"I think we'll see a peak in prices early in the season -- November, early December," said Larry. "Then we're going to see prices stabilize and maybe come back down -- hopefully a nice holiday gift for consumers on the East Coast."
Not everyone shares that outlook. Lipow sees heating oil five to 10 cents higher than now when the cold weather hits, and notes a new requirement in New York this year for ultra low sulfur heating oil, which he says could add five to ten cents a gallon for homeowners.
U.S. benchmark crude oil, which was trading at $78 a barrel as recently as June, hit $100 on Sept. 14 for the first time since May after the Federal Reserve announced new measures aimed at stimulating the economy, which could lead to increased energy demand. It also rose on concern that protests in the Middle East and North Africa over a video considered offensive to Muslims could lead to disruption of oil shipments from the region. On Friday, U.S. crude closed at $91.86 a barrel.
That kind of volatility is discouraging many smaller oil dealers from offering fixed or capped prices.
Kevin Rooney, chief executive of the Oil Heat Institute, says many dealers were hurt by last year's reduced consumption. An oil retailer who has committed to buy more product than it could sell during the season either must take possession of the oil anyway, pay a storage fee for it or pay a penalty to the supplier or brokerage with which it contracted for the oil, said Rooney.
"Last year was an absolute unmitigated disaster for the industry," he said.
Retired school secretary Christine DiFalco, 63, says she and her husband, Steve, 64, have been coping by keeping the thermostat no higher than 69 or 70 during the day and layering themselves in sweatshirts. They're about to have new siding installed that a contractor has assured them would have an insulating effect. And a couple of years ago, they shifted to a fixed monthly payment plan of $250 a month. "Before we retired," she said, "we wanted to know what our expenses were going to be per month."