Update on Oil Prices, Plus Reader Feedback on Heating With Wood

Five months ago, a prominent commodities expert told me that oil prices would move higher. The market has been extremely volatile since then, but that prediction has in fact panned out. So I sat down with him again to get his take on the outlook for oil prices and the economy in general. Also, readers weigh in with their tips and observations on woodstoves as a follow-up to my last issue, which discussed heating with wood.

Oil Prices: Grinding Higher

Back in April, I sat down with Jason Schenker, president of Prestige Economics of Austin, Texas. At the time, benchmark West Texas Intermediate crude oil was trading at $40 per barrel, after rallying from about $26 per barrel during the winter. Jason predicted that while the U.S. energy industry would continue to suffer from depressed oil prices, WTI would gradually head higher as production fell. Flash forward five months, and that is about what has happened: U.S. oil output is down from about 8.9 million barrels per day in April to roughly 8.5 million barrels per day now. A slew of firms have gone bankrupt. And after some big spikes and swoons, the price of crude has climbed from $40 per barrel to about $44.

Since he was right in his predictions then, I decided to check in with him again, on a range of topics.

On whether prices are still likely to head higher: “The trend is grinding upward….I see significantly higher prices by the end of next year and the end of 2018.” (By “significantly,” he means about $10 per barrel more than today’s price.) “Drilling costs have gone down, but the cost of getting the money to do that drilling has gone up” because energy firms that can no longer secure bank loans or raise funds in the bond market are turning to private equity funding, which comes with more financial strings attached.

On whether operators can put more drilling rigs to work and pump more oil in the near future: “They’re pulling out all of the stops, but at some point this is still a cash crunch.” The most efficient firms with the lowest-cost drilling prospects in areas such as Texas’s Permian Basin are finding ways to eke out a profit at today’s oil prices, but they probably can’t go on cutting their operating costs much longer. “There was a lot of fat on the steak that could be cut off, and that’s what they’re doing now.” That means U.S. output should keep trending lower and eventually bring supply and demand into better balance, which is bullish for prices in the long term.

On the state of the global economy: “I’m concerned about China….For almost two years Chinese manufacturing has been in recession.” That downturn has been a major reason why global oil demand growth has slowed and why prices started sliding in 2014. “Their economy is not growing at 6.5%.”

On the health of the U.S. economy right now: “Industrial production has been negative year over year for 11 months….The record without a recession is four [months]. Corporate profits have been negative year over year….Trucking orders are down…rail’s down…oil’s hurting, coal’s hurting….” All of this further confirms his expectation of a mild U.S. recession beginning either late this year or early next year.

On when the Federal Reserve will raise interest rates: “All this talk of Fed rate hikes…as I said in April ‘stick a fork in the Fed, they’re done.’ They keep forecasting that they’re going to raise the rates,” but they also keep lowering their prediction of how high rates will be in the future. This is “super-bearish for the greenback” and by extension bullish for commodities like oil, which are priced in dollars and thus get a lift when the value of the dollar weakens relative to other currencies. The Fed, he says, is anxiously monitoring the state of the economy, with new gauges of GDP growth, oil market dynamics and other diagnostic tests. “They are watching things very closely, in a way they have never done before, even during the financial crisis.”

Wood Heat: Tips, Best Practices, Drawbacks

Two weeks ago, I asked readers to weigh in on their experiences heating with wood during the winter, and the response was substantial. First off, thank you very much to everyone who contributed; your feedback was very helpful.

Here’s a rundown of some of the advice and observations:

Seasoning is key. Multiple readers noted that storing wood outdoors and letting it properly dry before burning is a must. Some folks argue for a year or more of seasoning before burning.

The cost of firewood is a major consideration. Wood you can secure for free makes it possible to save on your heating bills. Wood you buy probably won’t, unless you live somewhere with very high utility prices. And even free wood isn’t free. If you’re planning to rely heavily on a woodstove or boiler, you’ll need a hefty supply. And cutting, hauling and splitting all that firewood isn’t without costs. You might need a log splitter to handle big stuff. Or oil and replacement chains for a chainsaw. Or a trailer to haul your firewood stash home. In other words, don’t overlook the many costs that come with prepping your winter wood supply.

On the other hand, all the work involved in gathering and cutting firewood can be a plus. As one reader noted, tongue in cheek: “Self-acquired firewood warms you six times — once when cut, once when loaded to take home, once when unloaded and split, once when stacked, once when brought to the house, and finally when you burn it.” Another reader says that you can ease the burden of splitting firewood by doing it in very cold weather: “The wood practically jumps apart.”

Heating with wood can be messy. Hauling firewood inside also can bring in sawdust and bugs. Cleaning out ashes periodically isn’t easy. As one reader warns: “If you use a shop vac to clean out the fireplace or stove, you MUST USE A FINE FILTER.”

Products to try. One reader recommends an e-book called Stovemanship, by Mors Kochanski, as a good reference for folks who are new to heating with wood. Another recommends Kindle Candles, from Yankee Candle Co., as a reliable fire starter.

Pluses and minuses. One reader with a fireplace insert reports saving 20% on his annual heating bill, which is nothing to sneeze at. And many wood burners say that there’s “just something about wood heat” that seems more effective, or at least cozier, than the warmth produced by furnaces or other heating systems.

But many folks note that there are drawbacks to wood heating. Not everyone likes the smell of wood smoke in the air, either from their own fireplace or from their neighbor’s. A poorly burning fire can release harmful pollutants into the air. Using a stove as your primary source of heat requires keeping it burning for long periods of time, forcing you to stay nearby and monitor it. Tightening government regulations on air quality make it harder for new stoves and wood boilers to comply. (One reader from Vermont reports that his boiler is the only model from one particular manufacturer that can now be sold in that state.)

And ultimately, it’s difficult to know how efficient a woodstove truly is. The numbers some manufacturers advertise can vary depending on who performed the testing and how they calculated the result. And whatever the rating, the number was probably obtained in a lab under optimal conditions, using ideally seasoned firewood: Not exactly how most consumers will use them. So, as with the fuel efficiency stickers displayed on the windows of new cars: “Your mileage may vary.”