Americans Shouldn’t Sweat a ‘Normal’ Winter

by Alyssa Oursler | October 16, 2012 11:26 am

The Consumer Price Index[1] ticked up 0.6% in September on a seasonally adjusted basis, and one of the biggest culprits was energy — it rose 2.3% overall, with energy commodities jumping more than 6%. Gasoline increased for the third straight month with a 7% spike.

And the energy concerns don’t end there.

With winter bearing down on us, the U.S. Energy Information Administration expects demand for heating fuels to increase, raising the question: Is this just the tip of the iceberg?

A recent report by the EIA says U.S. households are expected to use more heating fuel this winter than a year ago as the season returns to roughly normal temperatures.

More specifically, the report expects demand from October to March[2] to be up nearly 14% for natural gas heating, 17% for heating oil, 8% for electricity and 17% for propane. As a result, household expenditures[3] for heating oil and natural gas are expected to increase by 19% and 15%, respectively, while propane will climb 13% for propane and electricity will be up 5%.

Better ready the mittens and earmuffs to save some cash this season, right?

Not so fast.

As the report said, the rise in temperatures means winter is expected to be normal. Last winter, as I’m sure you remember, was abnormally warm. An increase over last year’s low costs, then, while not welcome, shouldn’t be as shocking as the double-digit figures would make it seem.

Consumption actually is forecast to be less than the five-year average for all major heating fuels — besides heating oil. The EIA expects to see the largest jump in demand and cost for heating oil, with its average cost expected to top any previous winter on record. Of course, only 6% of U.S. households use that fuel to begin with.

Instead, nearly half of U.S. households[4] use natural gas — and there’s better news on that commodity’s front. Supply should not just meet the rising demand for natural gas, but actually outpace it. Natural gas inventories are expected to climb to 3.9 trillion cubic feet by Nov. 1 — a record for that time of year.

On top of that, prices already are pretty mild. The index for natural gas — while gaining 2% in September and 2.8% in August — still is down 11% in the past year. Meanwhile, the price tag for the commodity on its own has dropped a quarter of its value over that period.

Propane, another another common source of heat, tells a similar story. While prices ticked up slightly in September, they have dropped 40% during the past 12 months, leaving room for a colder winter without too much of a shock to consumers’ wallets.

Of course, keep in mind that the prediction for a more “normal” winter is just that — one forecast. Other forecasts are saying something different.

MDA EarthSat Weather, for one, expects we will see a second consecutive mild holiday season, with temperatures likely above the 10- and 30-year normal ranges[5] — not as warm as last year’s highs, but enough to drive demand down. Plus, September already demonstrated a warming trend, as it was tied for being the warmest on record going back to 1880.

Futures for natural gas are reflecting such a tempered outlook. They have fallen from a 2012 high of late, including a 3.5% decline Monday that brought natural gas futures’ year-over-year drop to nearly 6%.

In the end, between relatively mild prices and record natural gas supply, this winter shouldn’t be too hard on consumers’ wallets — no matter how the weather shakes out. So don’t lose any sleep over the speculated cold front or broad warnings of spiking energy costs.

At least not for now.

Endnotes:
  1. The Consumer Price Index: http://www.bls.gov/news.release/cpi.nr0.htm
  2. demand from October to March: http://www.eia.gov/todayinenergy/detail.cfm?id=8310
  3. household expenditures: http://www.eia.gov/forecasts/steo/
  4. nearly half of U.S. households: http://www.businessweek.com/news/2012-10-12/natural-gas-declines-as-mild-weather-to-limit-heating-demand
  5. above the 10- and 30-year normal ranges: http://www.csmonitor.com/Environment/Energy-Voices/2012/1003/Natural-gas-futures-fall.-A-mild-winter-to-blame

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