Drop in oil prices no reprieve for homeowners’ heating costs

Bob Sadlowski wants to stay warm without going broke this winter and so, with apologies to home decorating mavens, he’s insulating the windows of his home in Easthampton, Mass., with plastic sheeting.

Similarly motivated, R.J. Moore of Kansas City, Mo., will bundle up indoors rather than cranking up the thermostat.

Leroy DeHerrera of Denver expects to deal with home heating costs a little differently this winter: “I guess I’ll go through the roof when the bill comes.”

Although oil prices have fallen nearly $8 a barrel from their October peak, homeowners are bracing for sharply higher winter fuel bills. The Energy Department this week estimated that bills for heating oil customers will be 37 percent higher than last year, while homeowners relying on natural gas can expect to pay 15 percent more.

The National Oceanic and Atmospheric Administration is predicting a normal winter in the Midwest and Northeast, cooler-than-normal temperatures in the South and Middle Atlantic states and warmer-than-normal conditions throughout the West.

Unless temperatures are warmer than expected over the next five months, “there isn’t a lot of reason for us to think that prices will fall a lot,” said Dave Costello, an economist at the Energy Information Administration, the statistical wing of the Energy Department.

And so people like Sadlowski are taking last-minute steps to make their homes more energy-efficient.

“I know it doesn’t look good,” Sadlowski said about the plastic around his windows that flaps in the wind. “You have to ask yourself if you’d rather be paying an extra $100 a month for [heating] oil.”

The 33-year-old cook also installed a digital thermostat for more accurate temperature control and – in what now looks to be a savvy financial decision – he locked in his heating oil costs for the winter at $1.26 a gallon. As of this week, Massachusetts residents were paying an average of $1.96 a gallon, according to Energy Department data. The nationwide average for heating oil is $2.03 per gallon, compared with about $1.39 a gallon a year ago.

The surge in heating oil prices this fall was magnified by tight supplies, analysts say. Government data show that the nation’s inventory of distillate fuel, which includes heating oil, shrank on a weekly basis for two months.

In mid-September Hurricane Ivan forced refineries along the Gulf Coast to shut down and evacuate employees. Rather than restart operations once the storm passed, many started pre-winter maintenance earlier than usual.

Inventories of distillate fuel are now roughly 13 percent below year-ago levels, but analysts expect supplies to grow soon and they do not anticipate any shortages. That said, they do worry that supplies could be stretched thin if temperatures are colder than expected.

The other concern is the high price of crude oil, from which heating oil is refined. While crude futures prices are down from late-October highs above $55 a barrel, they are still about 50 percent above year-ago levels because of surprisingly strong demand, a thin global supply cushion and market fears about the war in Iraq, labor strife in Nigeria and other tensions in oil-producing nations. Crude for December traded Friday at about $47.30 on the New York Mercantile Exchange.

The cost of crude oil accounts for about half the retail price of a gallon of heating oil. The remainder is because of refining and marketing costs, taxes and profits.

The strengthening economy has helped push natural gas futures up 50 percent from a year ago to roughly $7.20 per 1,000 cubic feet. Still, many brokers say speculation played an outsized role in the rapid rise of natural gas futures this fall, since there is plenty of fuel in storage ahead of winter.

The latest Energy Department data showed the nation’s natural gas supply to be 8.7 percent higher than the five-year average.

“The fundamentals of the natural gas market were not bullish at all,” said James Cordier, head trader at Liberty Trading Group Inc. of Tampa, Fla.

The prevailing wisdom these days is that oil will stay below $50 a barrel in the near term, barring any unusually cold weather. Sentiment shifted as the nation’s supply of crude oil grew rapidly in recent weeks, signaling to many traders that refiners are preparing to ramp up production.

“With crude oil prices being quite expensive, there’s no reason to load up on crude unless they plan to refine it,” said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Conn.-based provider of industry analysis.

But Beutel said the average heating oil customer should expect to pay $300 to $800 more this winter because of the higher costs distributors are paying at the wholesale level.

Yet if homeowners have little control over energy prices, to say nothing of the weather, they do have the power to conserve fuel.

The Moore family of Kansas City aims to do just that. Forty-nine-year-old R.J. Moore is winterizing his home for the first time by closing off some rooms, putting plastic over windows and caulking any seams where heat may try to escape. Asked if his family wears sweaters and socks around the house, he replied: “We’re going to this year.”

Denver resident Barbara Vuletich, 78, is concerned about rising natural gas prices, too, but has a more philosophical outlook. “It doesn’t make sense, but it’s not about what you want,” she said “It’s what you get.”

Associated Press writers Margaret Stafford in Kansas City, Mo., Adam Gorlick in Northampton, Mass.,

and Catherine Tsai in Denver contributed to this report.