Sizing Up Heating Fuel Supplies Ahead of Winter

It’s only August, but it’s not too early to check in on the supply of the heating oil, propane and natural gas that that will start warming homes and businesses in a few short months. Especially since consumers could face notably higher heating costs this coming winter than what they have paid recently.

Like every other product, the price of heating fuel is determined by supply and demand. Demand, of course, depends on the weather, and thus can swing wildly from one winter to the next. Supply, on the other hand, is easy to gauge now.

This summer, stockpiles of all three major heating fuels are lower than they were a year ago. And that could push prices up if the winter of 2017-18 turns out to be colder than normal.

Heating oil supplies are relatively healthy. According to Department of Energy data, stocks of distillate fuels (which include both diesel and heating oil) are about 2% lower than they were at this time last summer.

Propane and natural gas are far less plentiful than they were a year ago. At 3.3 trillion cubic feet, the amount of natural gas held in underground storage is down about 8% year-over-year. Propane stocks are down a whopping 26%.

Some prices are already trending higher than last year. On the spot market, propane is selling for about 73 cents per gallon, up sharply from 43 cents a year ago. At $1.53 per gallon, heating oil futures are trading significantly higher than last August’s $1.26. Retail prices can be hard to track down, and vary across the country. But in New York, state data show that consumers are currently paying 9% more for home heating oil than they were a year ago, and 15% more for propane. Given the drop in inventories and rising crude oil prices, other states are probably seeing similar increases.

Higher winter heating bills aren’t a certainty yet. Stockpiles of gas, heating oil and propane still have at least a couple of months to increase before cold weather sets in and suppliers start drawing down their inventories to meet rising demand.

But building up supplies before winter is getting harder. The U.S. is exporting more propane and natural gas that used to be consumed domestically. Long a net importer of natural gas, America is now poised to become a net exporter thanks to new terminals that can liquefy gas and load it onto special tanker ships. And foreign buyers from Asia to Europe are gobbling up more U.S.-sourced propane. In both cases, exporters are seeking to take advantage of booming energy production enabled by hydraulic fracturing to ship gas and propane to markets where prices are higher.

The jump in exports means less fuel available to American consumers come winter, creating the potential for significant price increases if the weather turns frigid.

As to the long-term weather forecast, it’s probably too early to say much with any certainty. As autumn approaches, I’ll report back with what meteorologists are saying about the upcoming winter and what their predictions mean for heating costs.