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Heating costs likely higher this winter as energy prices swing wildly

The volatility of energy prices is being driven by hope and fear about the global economy, which affects demand for oil.

Michael Coniglio, an oil truck driver for Frank

Michael Coniglio, an oil truck driver for Frank Bros. Fuel Corp., delivers fuel to a home in Bay Shore on Wednesday. Photo Credit: Jessica Rotkiewicz

Energy prices are zigzagging as the heating season ramps up.  The price of home heating oil dropped in the past month as the cost of crude oil plunged, but it is still about 18 percent higher than a year ago. 

The volatility of energy prices is being driven by hope and fear about the global economy, which affects demand for oil. Growing world economies pushed up the price of oil compared with a year ago. The recent decline is in large part due to worries that the trade fight  between the world's two largest economies, the United States and China, will slow growth, experts said.

For consumers, the uncertainty puts a premium on heating contracts that cap their costs but can also adjust for lower prices, some experts said.  

Forecasts of this winter's heating costs are being revised. The U.S. Energy Information Administration, in a release this month, said it expected average oil heating bills across the country to rise by 20 percent, or $269, for the season. But it has since updated the forecast to a lower increase of $215.

Heating costs may also rise because of colder weather late in the season,  boosting use of fuels. Dave Samuhel, meteorologist at AccuWeather, said while the forecast calls for weather to be "pretty close to normal" for most of the winter, February could be 2.5 degrees to 3 degrees colder than last year. December and January "could be a little bit milder" than last year, with the overall impact being that this winter ends "just a smidge colder," he said.

The average price of home heating oil on Long Island — the fuel used by just over half the homes here — was $3.57 a gallon on Nov. 12, according to the New York State Energy Research and Development Agency, which tracks prices across the state and reports the figures every two weeks. That price was 17.8 percent higher than a year earlier, and down from an average $3.60 for the week of Oct. 8. 

Long Island’s prices are the highest in the state, where the average on Nov. 12 was $3.39, according to the agency.

Natural gas customers will see some increases this winter, despite previous projections of stable prices. National Grid, which supplies natural gas for some 600,000 Long Island customers, now says it expects heating bills to rise 2.6 percent over the same period last year.

The market for energy has been more volatile than usual lately. The price of U.S. benchmark crude, which settled at $50.42 a barrel on Friday, is down from $75.86 a barrel on Oct. 3. A year ago it settled at $55.64.

Michael O’Connor, director of the New York Public Interest Group’s Fuel Buyer’s Cooperative, recommends his 4,000 Long Island members purchase winter heating oil with a capped program that limits the impact of spikes while allowing for downward savings because consumers pay the market price below the cap when they receive deliveries. The reason: “If someone’s in a program that offers a cap, they know they can budget for the top price,” and benefit from any decline, he said.

O’Connor urged heating oil buyers to make sure whatever contract they sign provides “some sort of price protection throughout the life of the contract."

He doesn’t recommend members purchase their oil on a cash-on-delivery basis, even though prices are generally lower. If there’s a shortage, the bigger, established companies with existing contracts get “first crack at the spigot” from oil wholesalers. “Being with a full-service company with a standing relationships for pickups at the local wholesaler is the best way to go,” he said. COD is “not a good way to go unless you have a very big tank.”

O’Connor noted that while prices now have dropped “significantly” in the last couple of weeks, they are still “significantly higher than a year ago, and that’s likely to continue.” He agreed that unpredictability and market reactions to external events has only heightened the trend.

Earlier this month, crude oil prices dropped 9 cents in just two days. Those sorts of swings used to be typical for a three-month period, he said.

“Which is why we like plans with a ceiling price, but also some protection on the low end,” O’Connor said. 

Nick Del Vecchio, president of Frank Bros., a heating oil company in Bay Shore, who has been in the industry since 1986, said the recent drop in heating oil prices is the result of that roughly 30 percent drop in the price of crude oil — a trend that can be “good for consumers who want to lock in a price” now.

“Where the price is going to be in January and February — who knows? The market has dropped very quickly and could recover very quickly.” Instability in the Middle East, including uncertainty about Iran and the potential outcomes from a late-year meeting of the OPEC producers, all could alter the trend.

Del Vecchio  said many customers who lock in heating oil prices tend to do so in July, when heating oil tends to hit its lowest level of the year. “They are still locked in at traditionally good numbers,” he said, even with the slight decrease of the past month.

But with the recent decline in heating oil prices, “We’re seeing a lot of people start to lock in now,” he said. His fixed price for those customers on Nov. 15 was around $3.29 a gallon . “A good percentage are locking in,” perhaps around a third of his base, he said. His advice: “You find a price you can live with from a budget standpoint” and lock in there, if locking in is how you prefer to purchase oil.

Del Vecchio warned that any level of stability and lower pricing could be impacted by other factors beyond markets and geopolitical events. “A cold snap would drive it up because inventories aren’t that great,” he said. “They are near five-year lows, so a spike [in use] caused by weather for a period of time” could sharply increase prices.

Overall, Del Vecchio said, “There’s more room to go up than down.” That could mean now is “a pretty good time” to lock in a price, if you do so in winter.

Most customers who lock in, he said, will have done so by the end of December, with numbers dwindling this month.

National Grid projects its price rise will cost average users around $23 more for the five-month period between November and March.

The bulk of that hike is based on a previously approved increase of 4.4 percent in delivery charges  starting in January, and does not include a recent increase in the price of natural gas, spokeswoman Wendy Ladd said.

The price of natural gas also remains volatile; on Nov. 15 the price fell 17 percent — its sharpest one-day decline since February 2003 — a day after gaining 18 percent, which was the biggest one-day rally in 14 years, according to a Wall Street Journal report.

But increases in natural gas prices could have an impact on bills before the season’s out. Ladd noted that National Grid has not yet figured recent natural gas price spikes into its $23 estimate for seasonal increases, explaining, “We won’t know until the end of November or later what kind of impact there will be.”

Natural gas was at $4.31 per 1,000  cubic feet on Friday, up from $3.18 a year earlier. 

PSEG Long Island customers who heat with electricity will — like all electric customers on Long Island and the Rockaways — see a 2.4 percent increase in the delivery portion of their bills come January. That increase, approved by trustees in November, will be offset by a giveback from overcollections from 2017 and an anticipated reduction in the power supply charge portion of bills,  LIPA  said in releasing its budget. LIPA is the state authority that owns the Long Island electric grid; PSEG manages the grid under contract to LIPA.

The delivery charge increase amounts to around $2.61 a month for average power customers, and somewhat more for those who heat with electricity, depending on how much they use.

The Oil Heat Institute of Long Island, an industry group, said that with prices dropping in recent weeks, most members are selling a large portion of their inventory at market prices rather than locked-in contracts, even with prices higher than a year ago.

Joseph Vassallo, executive director of the institute and a 40-year veteran of the industry, said that when customers call asking for pricing projections, he is loath to comply.

Expert estimates haven’t always been reliable, while geopolitical forces have a way of undermining traditional trend lines based on factors such as supply and demand.

“I try never to get into the trap of saying, ‘Purchase now cause it’s going higher,’ or, ‘Wait, it’s going down,’” Vassallo said. “A lot of consumers over the years have gotten upset and burned by locking in a price and then the market, being very turbulent, changed, and they felt like they were being cheated.”

Local oil dealers, he noted, are subject to the same volatility. “We’re pawns in this."

“So much of the pricing is tied to geopolitical intrigue,” he said. “It’s just not as predictable as it could be. Prices are down, but all it takes is a political event somewhere, a sideways glance from a crown prince of Saudi Arabia, and up we go.”

Ten to 15 years ago, supply was high in the summer, prices came down, and customers could safely lock in for the winter. No more. “The swings can come at the drop of a hat,” O'Connor said. 


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