Heating Oil Prices Lag Behind Decline in Crude Oil Prices

November 28, 2018

Augusta, Maine - The Governor's Energy Office (GEO) conducted its weekly heating fuel price survey on Monday, November 26, 2018, and found the current statewide average cash price for No. 2 heating oil was $2.99 per gallon, down 2 cents from last week, and the lowest average price since mid-October. The average statewide kerosene price is also 2 cents lower than last week ($3.58 per gallon). The average propane price declined 1 cent, and now stands at $2.88 per gallon (for heating customers). The table below shows prices over the last month, and the difference in prices between this heating season and 2017-18.

Date Maine Average Retail Fuel Prices,
per Gallon
Heating Oil Kerosene Propane
11/5/18 $3.01 $3.61 $2.89
11/13/18 $3.02 $3.61 $2.88
11/19/18 $3.01 $3.60 $2.89
11/26/18 $2.99 $3.58 $2.88
avg. 2017-18 heating
season price
$2.59 $3.22 $2.70
% higher than last
season
15.4% 11.2% 6.7%

After several weeks of price escalations (during September and early October), global crude oil prices have retreated from four-year highs of between $75 (WTI, the North American benchmark price) and $85 (Brent, the European benchmark) per barrel. During November, crude oil prices have dropped sharply and currently range between $51 (WTI) and $59 (Brent) per barrel, a decline of approximately 30 percent since the heating season began. According to Bloomberg, prices have not been this volatile since early 2016 https://www.bloomberg.com/news/articles/2018-11-27/oil-holds-biggest-gain-in-two-months-as-exporter-talks-in-focus .

Heating fuel prices, however, have remained rather flat since escalating earlier in the season. Although the price of heating oil generally tracks that of crude oil, there are several market forces which also influence the final price of heating oil delivered to and sold at retail in Maine.

During periods when crude oil prices escalate, heating oil prices, historically, have risen shortly thereafter (one to two weeks). However, the timing of price changes in the heating oil market is also influenced by the time of year in which crude prices rise or fall. When crude prices decline, it often takes longer for heating oil prices to reflect the lower crude prices. There are several possible reasons for the lag. When refiners have to pay higher prices the finished product costs more, and they refine large quantities at a time, especially when they are preparing for upcoming winter demand. This higher-priced product has to make its way through delivery chains, finally reaching Maine retailers.

Also, regardless of global markets, when demand is high, as it is during winter, prices are higher. Markets often react to higher demand with higher prices. Another factor this year that may be relevant to heating oil prices is the recent refinery explosion at the Irving refinery in New Brunswick. A large percentage of Maine's heating oil is produced at this refinery. Irving had contingency plans in place to provide alternate supplies during their shutdown, but it is unknown if these supplies were more expensive than their normal supply.

The entire Northeast region is experiencing a similar time-lag in refined product prices. All New England states are observing flat pricing, despite the recent decline in crude oil prices. Eventually the lower priced crude will be reflected in the heating oil market, but if demand continues to be high, price reductions may be further delayed.

Below is a table of prices collected for various regions of the state.

Maine Retail Heating Fuel Prices, as of November 26, 2018


Heating Oil

Statewide

Southwest

Central

Eastern

Western

Northern

Average

2.99

2.97

3.04

2.98

2.95

3.04

High

3.50

3.05

3.50

3.50

3.45

3.23

Low

2.49

2.49

2.85

2.67

2.70

3.00

Kerosene

3.58

3.62

3.59

3.55

3.53

3.57

Propane

2.88

3.01

2.83

2.90

2.76

2.70

The following table compares the prices between various heating fuels, and converts these prices to a common heating unit value (dollars per million Btu).

Comparison of Heating Fuel Prices per Million Btu (November 26, 2018)

Fuel Price (in dollars) Fuel Price (dollars per million Btu)
Cord Wood ($275/cord) $12.50
Natural Gas ($1.34-$2.08/therm)* $13.47-$20.79
Wood Pellets ($268/ton) $16.24
Heating Oil ($2.99/gallon) $21.56
Kerosene ($3.58/gallon) $26.52
Propane ($2.88/gallon) $31.53
Electricity - baseboard (14-17.5 cents/kwh) $42.50-$51.29
Electricity - air source heat pump (5.2-6.5 cents/kwh)* $15.24-$19.05

*price varies depending on location; natural gas and electricity delivery companies service only selected areas of the state.
**ductless, air source heat pump calculations courtesy of Efficiency Maine


Fuel prices are only part of the calculation when determining which fuel will save you more money over the course of a heating season. The type of heating system and its efficiency are also important factors in determining final costs. The Energy Office has a calculator on its website that allows consumers to explore these fuel options further, as well as compare efficiencies of heating systems most closely matching their own system. Heating costs vary considerably from home to home. The home-heating calculator can assist homeowners in finding the best heating option for their home, location, lifestyle and budget http://www.maine.gov/energy/index.html . Efficiency Maine also has a calculator on its website to help consumers evaluate their heating options http://www.efficiencymaine.com/at-home/home-energy-savings-program/heating-cost-comparison/ .

The price for heating oil is a statewide average; prices in a given geographic region of the state may be considerably higher or lower than this average. This week, within the Energy Office sample, the highest heating oil price found was $3.50, and the lowest heating oil price found was $2.49. Also, the statewide average price for propane is based on consumption of at least 900 gallons a year. Households using propane just for cooking or hot water generally pay a higher per-gallon price. The table above provides current Maine cash prices in dollars rounded to the nearest penny.

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For Immediate Release

Contact:
Lisa Smith
(207) 624-7445
lisa.j.smith@maine.gov