WSJ weights in on impact of low heating oil prices

By Jon Kamp

(WSJ) — On top of the broad savings Americans are reaping from cheaper gasoline, plummeting oil prices stand to bring residents in the Northeast billions more dollars in savings this winter when they fill up their home-heating-oil tanks.

An estimated 6.2 million U.S. homes rely on heating oil for seasonal warmth, the vast majority in the Northeast. The region—stretching from Maryland to Maine—accounts for about 87% of the heating fuel’s use, according to federal data. The fuel is delivered by truck and pumped into storage tanks, which are often in the basement.

Heating a house with oil has been much pricier than using natural gas for several years, imposing a burden on homeowners who can easily burn through 1,000 gallons of oil every winter. But as the price of crude falls world-wide, the current average price for heating oil in the U.S. has dropped $1.10 from a year ago to under $3 a gallon for the first time in more than four years, the U.S. Energy Information Administration said.

Based on average wintertime consumption, a dollar per gallon in savings over the whole heating season could mean roughly $3 billion in savings for Northeast residents, said Chris Lafakis, a senior economist at Moody’s Analytics.

This translates into hundreds of dollars in savings with each heating-oil fill-up, providing some relief for people who struggle to pay energy bills. Dorothy Perkins, a 65-year-old retiree in coastal Lamoine, Maine, estimates she and husband Gary, a part-time Wal-Mart worker, had to pay more than $4,000 to keep their furnace humming last winter.

This was despite closing off some rooms and huddling under blankets as their thermostat was set at just 60 degrees. Her sister, overwhelmed by high energy costs, had to come by temporarily with her two cats. “It was a struggle,” Mrs. Perkins said. “I don’t know many people that have that much money.”

Indeed, heating-oil costs remain a hardship for many residents in the region despite the drop. The Washington Hancock Community Agency in Maine, a nonprofit group that helps provide heating assistance, is getting as many calls as ever for help, especially as the weather turns colder, Executive Director Mark Green said.

The situation in Maine is particularly acute as no state relies more on heating oil. The state, which has limited pipeline access to natural gas, has nearly two-thirds of its homes using oil and other “combustible liquids” for warmth, according to federal census data.

The steep decrease in prices is also largely good news for regional oil dealers, which are often small, family-owned businesses that have lost business to an expanding web of natural-gas mains for decades. Lower prices mean paying less to fill trucks and better odds that customers can pay bills on time, said Michael Ferrante, president of the Massachusetts Energy Marketers Association, which represents heating-oil firms in the state.

While federal data show natural gas remains a cheaper fuel nationwide, in pipeline-constrained Maine, gas on average is actually more expensive now for residential customers, once oil prices are converted into a comparable unit of measurement, according to Republican Gov. Paul LePage ’s energy office.

The most recent Maine numbers show average heating-oil prices of $2.63 a gallon, down $1.18 from a year ago. The slide is linked to declining prices due to rising global production and modest demand growth.

Privately held Lincoln Paper & Tissue LLC in central Maine switched to gas instead of heating oil to run drying equipment in 2012, but has the ability to switch back if oil becomes cheap enough, said Keith Van Scotter, the company’s chief executive. The plant makes dyed napkins commonly sold in party stores.

Elsewhere in Maine, suddenly lower oil prices may cool consumers’ appetite to switch fuels, at least for now. “We saw the sign-up rate start to drop off when oil prices started to drop,” said Dan Hucko, a spokesman at Iberdrola USA’s Maine Natural Gas, a small utility there.

Gas utilities in Massachusetts, Connecticut, New York and Pennsylvania said they haven’t yet seen that effect. Mr. Lafakis, the Moody’s economist, said natural gas is still a better pricing bet for homeowners over the long haul. Gas is steadily helping replace heating oil overall.

Oil users will enjoy the ride while it lasts. “It’s fantastic knowing that the price has gone down,” said Mrs. Perkins, the Maine resident, who topped off with 129 gallons on Monday to take advantage of low prices. “But it’s not going to stay.”