Energy Prices Fall as Winter Approaches

Special Report: Energy Prices

Traditionally, energy prices tend to trend up as the winter heating season approaches. But thanks to a glut of oil and natural gas reserves, a warmer winter, and an economic climate that's causing a slight drop in demand, residential energy bills are forecast to be about 8 percent less than last year, according to a recent report by the federal Energy Information Agency (EIA).

Energy bills for households that use propane for heat, estimated by the EIA to be about 6 percent of all homes, are forecast to drop 14 percent compared to last year, the most savings among any fuel source; that translates to an average of $147 in annual cost savings. By comparison, energy costs for those who use natural gas are expected to be 12 percent less than a year ago, while households relying on oil and electricity for heating energy should each see only a 2 percent savings.

EIA says the drop in residential energy costs is the result of falling oil and natural gas commodity prices caused by excess capacity and lower demand. Oil prices, for instance, have fallen from a peak of $147 a barrel less than a year ago to around $70 per barrel this fall; natural gas prices, meanwhile, have dropped from $13.60 to as low as $3 per thousand cubic feet.

And those prices are expected to remain stable—increasing less than $5, respectively—through 2010. Historically, say experts, when energy price spikes like those experienced in 2008 are followed by a recessionary period, prices remain flat or slightly down for about 18 months.

The forecast also takes the weather into account. The National Oceanic and Atmospheric Administration (NOAA) predicts that the coming winter will be, on average, 1 percent warmer than the previous year; in the Midwest, where propane commands its greatest share of the home heating market, temperatures are forecast to be 4 percent warmer than last winter, resulting in propane-heated households averaging a startling 21 percent drop in energy bills.

For more information about energy prices and the 2009-2010 forecast, go to www.eia.doe.gov/emeu/steo/pub/oct09.pdf.


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