Where Heating Fuel Prices Go From Here

With much of the U.S. feeling the effects of cold and snowy weather, now seems like an appropriate time to check in on heating fuel supplies and hazard some guesses about where fuel prices go from here. Many residential and business customers caught a break on heating costs last winter, with historically mild temperatures in many places. But the situation looks a bit different now that the calendar reads 2017.

Sizing Up Heating Fuel Stockpiles

Any analysis of winter heating costs has to start with how much natural gas, propane and heating oil is on hand to meet the season’s heating needs. And for the most part, those stocks of stored fuel look ample.

Start with distillate fuel, the category that includes both diesel and the heating oil that many folks burn for warmth in New England and the Northeast. Federal data show that the U.S. ended 2016 with about 162 million barrels of distillates, the highest level at year-end since 1982. So, heating oil customers needn’t worry much about supply shortfalls this winter.

Natural gas storage levels are also robust. But note that heavy demand has been draining those stockpiles at a brisk rate so far this winter. Stockpiles surged to a record high this autumn as surplus gas produced during the warm-weather months went into storage. Stocks peaked at a lofty 4.05 trillion cubic feet in early November. But since then, cold weather has heated up demand and caused stockpiles to dwindle by more than 700 billion cubic feet — about twice as fast as the drawdown during the same period one year ago.

Demand for gas has grown over the past year because of heavy usage by gas-fired power plants. What’s more, the U.S. is exporting more gas and importing less. Throw in a cold winter and demand can really jump. So, while gas held in storage should buffer the country against any threat of a shortfall, the glut that had kept prices down last year is likely to shrink considerably.

Propane could be in the shortest supply this winter. As with natural gas, propane storage levels build up in the summer when demand is low and then start to dwindle when winter arrives. This autumn saw a massive buildup, with propane stockpiles hitting 104 million barrels, near the all-time high. Since then, stocks have plummeted by more than 20 million barrels. That’s an unusually sharp decline. And unless the weather turns mild and stays that way, I expect the rapid propane drawdown to continue.

Whither Prices?

So, based on what we know about supplies, where should we expect prices to go?

All three of the main heating fuels are already more expensive than they were at this time a year ago. At about $3.12 per million British thermal units (MMBtu), the benchmark gas futures contract trades for nearly $1 more than it did a year ago. Residential heating oil prices are averaging 45 cents per gallon higher than they were a year ago. Propane: 27 cents higher.

Energy users should figure on some further price gains. Unless the weather turns freakishly mild, it’s a sure bet that natural gas, propane and heating oil stockpiles will continue to dwindle. Gas storage levels in particular figure to fall because of the higher demand from power plants and the rising exports noted above.

But the rest of the winter should see only moderate price increases unless temperatures plummet and stay frigid. The National Weather Service’s Climate Prediction Center is forecasting average to above-average temperatures across most of the U.S. from now until spring. Take any such long-term prediction with a big grain of road salt, but it does suggest that heating needs might ease soon.

My best guess on prices for heating oil and propane: An additional rise of 25 to 35 cents per gallon by winter’s end, on average.

Predicting natural gas prices is trickier. If storage levels are still relatively high by late in the winter, gas futures are bound to sell off. No commodities trader will want to own gas if it looks like there’s too much of the stuff left over when mild weather arrives. Conversely, a delayed start to spring could see stockpiles fall more than normal as folks keep their furnaces running longer. That could set off a price rally.

Look for gas futures to mostly trade from about $3.25 to $3.50 per MMBtu, with some short-term spikes closer to $4 in advance of any bouts of severe cold. For residential and commercial gas customers, that likely means modestly higher rates than what they paid last winter. Note also that higher natural gas prices could nudge electric rates slightly above their levels of a year ago, since the U.S. now generates so much of its power from gas.

Wood: The Alternative Heating Fuel

Several months ago I reported the beginning of a personal experiment: Heating my home some of the time with a new wood-burning stove. Many readers wrote me with helpful tips about how best to burn firewood, and I promised I’d report on how the stove performed this winter.

The weather in the Washington area has recently turned chilly, and after more than a dozen fires in my new stove, I can share a few early observations.

Kindling counts. Having experimented a bit with how best to light the stove, it has become clear that using plenty of kindling, in varying sizes, is vital for lighting a good fire quickly. I’ve found that means using less newspaper (which tends to smolder and emit lots of smoke) and more small wood chips, which burn brightly and produce little smoke.

Oxygen is the key. However you arrange your kindling and firewood, air flow is what really matters. I’ve had good success with a Jenga-style approach, layering in a few larger split logs at the bottom and then stacking smaller pieces at right angles. Loading the bottom pieces front to back (rather than side to side) allows plenty of air to circulate underneath the wood and promotes rapid ignition. Most crucially, leaving the stove door cracked open half an inch for about five minutes really fuels the fire and results in a steady blaze with little smoke.

Pay attention to log lengths. Much of my firewood turns out to be just short enough to fit in the stove. And that can be a pain when trying to position fresh wood right where you want it. Which is why I’ll be cutting many of those pieces in half with a chain saw. Shorter chunks of seasoned wood are easier to load, and make it easier to maintain a compact, bright fire.

So far, I’m declaring this experiment a success. Even a modest fire keeps my three-bedroom home comfortably warm during typical D.C. winter days (with highs around 40). During a recent cold spell, with highs closer to 20, the stove needed occasional help from the furnace but still shouldered most of the heating load.