EIA: US winter heating tab continues to rise

Dec. 18, 2000
Heating oil prices remain a major concern for the US Northeast.

Heating oil prices remain a major concern for the US Northeast.

In its latest short-term energy outlook, the US Energy Information Administration said, "Extraordinarily low heating oil inventories continue to put East Coast markets at risk of sharp price spikes if more cold weather moves in."

The agency said energy prices have continued to move higher this fall, with oil prices showing little or none of the anticipated declines relating to estimated excess production over demand rates.

EIA expects West Texas Intermediate crude prices to remain near or above the $30/bbl level for some time, perhaps through the middle of 2001.

"Natural gas spot prices soared to record average levels in November after a taste of winter weather arrived in major heating demand areas. Significant gas supply constraints on the West Coast have launched sky-high prices there.

"As a result of all this, we have substantially revised upward our estimates of consumer heating bills for the 2000-01 heating season."

Heating oil

EIA said, "November apparently brought nothing in the way of bearish price signals to East Coast heating oil markets (and US distillate markets in general). Despite high production rates, an infusion of Strategic Petroleum Reserve oil, and the possibility for a rebound related to early shipments of product to distributors and end users in earlier months, US commercial distillate stocks eked out only a 2 million bbl increase last month. Even in a normal [winter weather] year, the November stockbuild is larger than that."

The report said the vulnerability of US distillate markets (particularly in the Northeast) to upward price shocks under cold conditions has increased, and that is reflected in increasing margins for distillate.

"Our expectations for average heating oil prices have accordingly been adjusted upward, with the winter average price now expected to be about 29% above the year-earlier average. Combined with expected higher consumption rates this winter, typical heating oil bills may be more than a third higher than those seen last winter."

Natural gas

EIA said natural gas stocks are low and winter heating demand may be high.

It said significant demand increases from new gas-fired power plants next year will probably prolong the much-above-normal price environment through 2001, even if US and Canadian production increases as expected.

"We think the strength of these factors are reflected in the current strength of spot prices and have adopted a higher price path through 2001 compared to the previous outlook. We now see average winter residential prices averaging about $9.21/Mcf compared to $6.56/Mcf last winter. "This increase (40%), combined with expected growth in consumption rates, implies an expected increase in typical gas-heated household heating bills this winter of around 50%."

EIA said that, as was the case with heating oil, November ended with lower-than-anticipated gas storage levels, increasing the probability that the heating season will end with record-low levels of natural gas in storage. "We expect that high and volatile gas prices will prevail until solid evidence that the gas supply situation is easing. The net impact of the opening of the Alliance pipeline into the Chicago area (which began deliveries on Dec. 1) on gas supplies looms larger now as a factor of interest in the US."