Heating oil prices cool down as winter approaches

PORTLAND, Maine - September 28, 2009

Heating oil prices are barely half what they were in summer 2008 - and while prices might go up and even exceed last winter's, nothing indicates any severe spike this winter.

Those who heat with natural gas and propane can expect dramatic drops, while electric heat is projected to cost slightly less.

A little more than a year ago, William Foss paid more than $500 for 115 gallons of heating oil in his Portland home. The price was $4.52 a gallon and he feared it would keep going up. Foss, 62, had recently lost his job and his wife had died.

But he got help from a local nonprofit's home energy assistance program. And in the past six months, he's paid just $2.13 to $2.33 a gallon for three oil deliveries. While he's feeling better about the outlook for oil prices, he's preparing for the worst because colder winters and heavy reliance on oil heat make the Northeast vulnerable to high energy costs and price spikes.

"Something could happen in the next month or two that everything starts going the other way or it could go down," Foss said. "If we all had a crystal ball we could look in, we would know what's going to happen. But we don't."

When crude oil prices surged to nearly $150 a barrel in the summer of 2008, heating oil prices rocketed to record levels. In Maine, where nearly 80 percent of households have oil heat, many people signed contracts locking in rates at more than $4 a gallon for the 2008-09 winter.

Mike Shea, president of Bangor-based Webber Energy Services, said many of his oil customers signed the contracts in panic. Prices were rising fast and people were scared.

But prices plunged as fast as they rose, falling by more than half during the winter - with many homeowners forced to pay the higher contracted prices.

For October 2009 through March 2010, the Energy Information Administration projects the average cost of heating oil will go up to $2.71 per gallon, from $2.63 for 2008-09 - with average household expenditures up 1.4 percent nationwide. About 8 million U.S. households - roughly 7 percent - are heated primarily with oil, the EIA says.

Heating oil prices have remained relatively low this year and avoided the wild price swings that plagued the market the past couple of years. In Maine, the average price this year has ranged from $2.06 to $2.42 a gallon, according to the state Office of Energy Independence and Security.

"We'll never get back down to the $1-a-gallon era. But the main thing is, it's stable," Shea said. "The volatility and wild swings are difficult for people to plan around."

Nothing on the horizon suggests sharp price increases in the months ahead. Heating oil inventories are above average and hurricane activity hasn't disrupted oil production in the Gulf of Mexico, said Neil Gamson, an energy economist with the EIA.

"With the way stocks are now, it looks like even really cold spells shouldn't present as much of a problem as they could," Gamson said.

Other heating fuel costs are expected to drop. The EIA says heating costs from natural gas, used by 58 million households, will drop 16 percent nationally. Costs for electric heat, used by 39 million households, are projected to fall 1 percent. Spending for propane, used in 6 million households, is expected to fall 12 percent.

But the tough economy and high unemployment are likely to send millions of Americans to the federal Low Income Home Energy Assistance Program, which helps people with heating and cooling costs.

Last year, about 7.5 million households nationwide, and more than 60,000 in Maine, received funding from the program.

"What I'm hearing about is middle-class families where somebody has lost a job and they don't have many assets," said John Wolfe, executive director of the Washington-based National Energy Assistance Directors' Association.

Congress appropriated $5.1 billion to the program last winter, up from $2.5 billion the year before. Congress has yet to approve the fiscal year 2010 appropriations bill, but both the House and Senate versions of the bill keep the funding at its current level.

For Foss, the memory of last year's sky-high oil prices is still fresh in his mind. To prepare his home for this winter, workers caulked siding, wrapped pipes and tightened doors and windows. He also installed new steel-framed front and back doors.

"I'm just trying to cut corners and see if I can keep the thermostat down," he said. "If it gets chilly, I just throw a sweatshirt on or at night, throw an extra blanket on, and I'm comfortable."

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