I think I owe my readers an apology for the long hiatus that this newsletter has taken. But now that the leaves are turning and the air is getting nippy, my thoughts turn to …. the price of heating oil. Don’t yours?

  • Here in New England, we got headlines reading “Home Heating Bills Expected to Hit a Record High”. The US Department of Energy is projecting that heating oil prices will rise by 8 percent and stay at that level all winter. But why? All the charts and graphs tell us that crude oil costs have plummeted like a rock since the spring and are at the same level they were a year ago. The problem is that US crude oil is benchmarked against the price of oil at a huge storage depot in Cushing Oklahoma. That depot is landlocked, difficult to access and near its storage capacity, so prices are depressed. The price of Brent crude oil from the Britain’s North Sea, serves as the benchmark for 2/3 of the world’s crude. It serves as a more realistic indication of price trends. Looking at the table below, notice that Brent crude is up 25% from last year.
  • If you think the price of heating oil doesn’t affect you, think again. Heating oil and diesel fuel are basically the same. Diesel costs affect trucking, transportation and construction costs, and those increases will hit us all.

Natural Gas Prices – Will the Zombie Awaken?

Natural Gas prices have been dormant and on an almost continuous slide for the past two years. Whenever we “experts” think that the price can’t go lower, it drops. There are two main reasons for this: 

  • First, a great deal of natural gas has come online from “non-conventional” sources such as the shale gas fields of Pennsylvania, West Virginia and New York. In the past ten years, production from these areas has doubled. More importantly, thanks to developments in drilling technology, it is now estimated that the US has 100 years of recoverable gas. Natural gas has gone from being perceived as a scarce and declining commodity to being seen as an abundant one.
  • The second driver pushing the price of natural gas down is the economy. Gas is used both for process heat like bakeries, smelters and forges and as an input into the manufacturing of plastics and other materials.

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