2 factors that continue to depress natural gas prices (Part 6 of 6)
Heating oil
Heating oil is a distillate fuel oil. It’s used for domestic heating. It’s also used in industrial burner units—in a moderate capacity. Like gasoline and distillates, heating oil consumption and demand trends are important to refineries.
A higher demand for the fuel means bullish prices. This is positive for refineries—like Valero (VLO), Marathon Petroleum (MPC), Tesoro (TSO), and Phillips 66 (PSX). All of these companies are part of the Energy Select Sector SPDR ETF (XLE).
Last week, as of December 22, residential heating oil prices averaged $3.08 gallons. This is approximately six gallons lower than the last week. It’s $0.90 lower than the price for the same week last year.
Like natural gas and propane, heating oil sees greater demand in the winter heating season. However, NOAA’s (National Oceanic and Atmospheric Administration) projection of mild temperatures for the rest of the winter is expected to minimize consumer expenditures on home heating—compared to last winter.
Last winter, the US population‐weighted heating degree days, or HDD, were an estimated 18% higher than the previous ten‐year average for November—according to the EIA (US Energy Information Administration).
Impact on prices
Due to falling crude prices, US heating oil prices are expected to be 20% lower than last year. Heating oil prices are expected to be $3.09 per gallon this winter. According to the EIA, this will also help lessen household heating oil expenditures by 27%—or $632—compared to the winter last year.
Unlike natural gas, heating oil prices are tied to crude oil. If crude prices continue to drop and if weather forecasts hold true, there’s a possibility that heating oil’s price could fall more. While this is good news for US residents, falling oil prices aren’t good for the US energy complex.
For our analysis of recent commodity prices and their impact on energy companies, visit Market Realist’s Energy and Power page.
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