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Heating oil prices: How low will they go?

Oil prices have been continuously dropping, 18.6% from last year. This is hugely different from the estimate that the Energy Information Administration predicted for this winter of 15%. Not only that, but the current cost of oil is $68 per barrel (nearly $40 less per barrel as a few months ago) and could go as low as $50.

Why so low?
The current state of oil has a lot to do with this. The reason for the dropping of the price of oil is due to rising supply and increasing price competition. In the U.S., we have increased our production in North Dakota, taking pressure of OPEC. OPEC has also decided at the end of November that they will NOT be making production cuts which would have increased prices if they decided to make those cuts.

Pennsylvania’s Oil Costs
On average, Pennsylvania’s average heating oil price this December is $2.999 versus last year at $3.683. Just with in the last month the price on November 4 was between $2.99 – $3.349 to December 4 was $2.339 – $2.399.

What does this mean?
There has been a tremendous pressure lifted from both heating oil customers and the heating oil companies. Last winter, many of these companies carried debt for months in order to give their customers affordable monthly payment plans.

EIA Predictions
The Energy Information Administration has predicted that between Oct. 1 2014 and March 31, 2015 there would be a price drop for home heating oil of 15%, 27% for propane, 5% for natural gas, and 2% for electric. On the other hand, if the winter happens to be 10% colder than predicted, oil prices will only drop 5%, propane would decrease 15%, natural gas would increase 6%, and electric would increase 2%. Although this is all good news, the cost of oil now is still higher than the last five years averaged together.


EIA predicts Oilheat Homes to Pay Less for Heat

During the Winter Energy Outlook Conference in Washington D.C., industry representatives and energy experts came together to see what would affect the energy markets this year domestically and abroad. In this meeting, these members predicted a decline in heat costs for several reasons:

Domestically, there are pipeline and infrastructure developments throughout the U.S. driving down the price of domestic oil, as well as affecting shale oil internationally. Geopolitical pricing premiums for crude oil have shrunk because of liquidating positions, as well as a decrease in the amount of oil traded on ICE Brent, decreasing 75% from its peak last year. All of these reasons have been driving down oil prices.

The GDP growth in 2015 seems to be slowing. An August revision cuts the 2014 outlook by 10 basis points to 2.8%, and 2015 global growth is predicted to move from 3.4% to 3.5%. Europe and Japan especially are expected to expand quantitative easing programs, with growth more than likely struggling in major economies in the coming year. Additionally, the Middle East, South Asia, and former Soviet Union are building new refineries which put additional pressure on the refinery margins.

Weather Forecasts and Consumption:
The Conference predicts a decrease in consumption this year, as well as a decrease in retail price. They estimate heating oil will drop 15%, or $362 on average, less than last year. If the temperature raises another 10% over last winter, expect prices to drop closer to 24%.

Environmental and Efficiency Improvements:
There has been a push to make things more economical and efficient in the Northeastern states by moving to a low-sulfur heating oil product. This will, in turn, make a switch to long-term improvements to heating equipment. By increasing the blends of heating oil and renewable biodiesel, greenhouse gas emission reduces and there is an increase in long-term solutions to renewable fuel for American customers.

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