Government Says Sky is Falling for Home Energy Users; HEAT Says Take Warning as a Sign They Are Finally Paying Attention (Not That They’re Right)

The Energy Information Administration (EIA), the statistical branch of the Department of Energy, released its Short-Term Energy and Winter Fuels Outlook report today.  The report was covered by many news organizations, including the Associated Press and the Wall Street Journal.  News agencies seized upon the harsh declarations in the report, particularly that “Average household expenditures for all space-heating fuels are projected to be $1,137 this winter (October 1 to March 31), a 15-percent increase over the estimated $986 spent last winter.”

Price experts and market watchers at HEAT USA found the report to be well-intentioned but misleading. “Unless you’ve been asleep for 12 months, you know energy prices have gone through the roof. What this report makes no mention of is that energy prices are significantly off their highs from the summer, and from the middle of last winter,” says Andrew Heaney, President of HEAT USA. “The good news is that EIA is finally doing their job–they are trying to prepare the American people for the worst.  But the truth is, in terms of heating costs, there’s strong evidence that suggests the worst is already behind us.”  Perhaps the strongest evidence that Mr. Heaney refers to is the trajectory of crude oil prices since this summer.

After reaching its all-time high of $147 in July, the market price for a barrel of crude oil has fallen consistently and hit an eight-month low of $89.75 on Monday.  Heating oil rose to record-high prices in July as well, causing panic in communities across the Northeast that led to some rash buying decisions (see the September 26th posting: “The Perils of Locking in Your Heating Oil Price”).  With the current economic crisis expanding beyond the US and into European and Asian markets, the outlook for the next few financial quarters, and perhaps the next few years, includes a potential steep decline in energy demand.  “With the world facing what could be the worst economic environment since the 1930s, with consumers everywhere cutting back on spending in every area from cars to electronics, how could manufacturing centers like China and India continue to increase their demand for oil at the rate they did over the last few years? They can’t and they won’t,” Heaney said.

Domestic energy demand in the US has been dwindling for months, and continues to decrease as the economy slows down.  Besides the moderate supply disruptions caused by hurricanes Gustav and Ike, this decline in energy demand remains the most influential factor on the price of oil in the current market.  In fact, slacking demand has led many industry experts to revise their ’sky-is-the-limit’ predictions for next year’s oil prices- most notably Arjun Murti of Goldman Sachs, who on September 19th cut back his 2009 price prediction from $140 a barrel to $110, according to the Economic Times.  Murti further acknowledged demand reduction patterns in the oil market as recently as last weekend, as reported by Rueters yesterday: “Oil prices increasingly appear unlikely to sustain a rally until global GDP expectations bottom,” he wrote on October 5th.  Translation: as the global economy declines, worldwide demand for oil will continue to shrink.  As demand lessens, crude prices will most likely continue to go down, taking heating oil prices with them.

To be sure, no expert analyst or government agency can actually predict where the price of oil will go in the next weeks, months, or years.  One would expect an already-unpopular president and Congress to be conservative in their estimates of coming difficulties for Americans, as any underestimation on the part of the government to become yet another example of their ineptitude in responding to a major crisis.  Average Americans will no doubt face substantial economic hardships as the current crisis intensifies.  By joining HEAT USA you’ve taken one of the most important steps to protect yourself–you’re better protected and informed than other heating oil consumers. And we’ll continue to work hard to keep you that way.