Winter weather forecast: higher gas prices, heating oil costs

The nation’s energy bill – from driving over icy roads to keeping the living room warm – is on the rise. Compared to last winter, in fact, it might be enough to make you break out the sweaters and leave the snowmobile in the garage.

On Thursday, retail gasoline prices popped to over $2.70 a gallon, the highest level since October 2008, according to AAA’s Fuel Gauge Report. At the same time, home heating oil is running 50 cents a gallon higher than last winter at this time, according to the federal Energy Information Administration (EIA). And, on Thursday, crude oil prices hit $82.63 a barrel, a small drop from Wednesday but close to the highest level since October 2008, just as the recession was beginning to hit.

Impact on economic recovery

The higher energy prices will not be helpful to the economy’s recovery since they take money out of consumers’ pockets. Economist Mark Zandi of Moody’s Economy.com says every penny increase in a gallon of gasoline costs consumers $1 billion over a one-year period. With gasoline prices up $1 a gallon in the past year, it has cost consumers an extra $100 billion.

“This is about 1 percent of consumer spending,” says Mr. Zandi. “This by itself does not do the consumer in, but it does not help.”

According to energy analysts, part of the blame for the rising prices can be pinned on the Arctic-like conditions that have hit the US, Europe, and parts of Asia. In December, temperatures in New York ran about 1.4 degrees below normal and in the first part of January are almost 5 degrees below normal, according to AccuWeather.com. This has pushed up demand for home heating oil and natural gas. Natural gas prices are still below last winter but are rising sharply.

“Anytime you get a sustained period of cold weather it drives up prices in the short run,” says Tancred Lidderdale, a short term energy analyst at the EIA in Washington. “But, there are also snippets of good news about the economic recovery that influences expectations of the growth of oil demand.”

One reflection of some improvement in the economy is a “mildly” stronger gasoline market, says Sander Cohan, a principal in Energy Security Analysis, Inc. in Wakefield, Mass.

Oil refiners running below normal

However, Mr. Cohan, an expert on gasoline supplies, says what’s really causing prices at the pump to rise is low production by refiners. They’ve been operating at about 80 percent of capacity, well below normal. In fact, in recent weeks, some companies have announced plans to shut down refining capacity.

“The refiners have been caught between a rock and a hard place,” Cohan says, referring to the higher crude oil prices and the relatively low demand.

Cohan thinks gasoline prices might be close to their peak, especially since he anticipates refiners will start to shift from making home heating oil to gasoline in February. “I don’t know if we’ll see $3 a gallon, but I don’t think it has enough push to get that high,” he says.

As for the weather, the central and eastern parts of the nation need to brace themselves for even colder weather this weekend and into early next week. But, then the pattern changes, says Andy Mussoline, an AccuWeather meteorologist in State College, Pa.

“The temperatures the last two weeks of January will average near normal,” he says. Unfortunately, these slightly warmer temperatures won’t be here to stay.

“For the remainder of the winter, for February and March, we will have below average temperatures,” he predicts. “We’re calling this the coldest winter for the central and eastern parts of the country since 1985,” he says. “It’s not as if we’re smashing records but it’s just the duration of the cold.”

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