It started with far-flung issues – the COVID-19 pandemic, Russia’s invasion of Ukraine, low investment by oil and gas companies – but eventually, the broad upset in the energy market came home.
“I just passed out,” Wendy Sweigert said of her recent $589 bill for 100 gallons of heating oil. “We supplemented it with a space heater, but the electricity went up too, so it was a no-win situation.”
Sweigert, from Lower Allen Township, is just one example of residents in the Harrisburg area – and across the nation – facing an uncertain season amid what is expected to be a sustained high heating price brought by unprecedented volatility in the energy market.
“There are many factors, and they change, and it becomes difficult to plan a strategy with customers about what to do because it is not known where it will go,” said Will Muller, Senior Business Development Manager at Shipley Energy, which delivers heating fuel all over the country.
A gallon of heating oil in Pennsylvania cost an average of $5.84 in the first week of November, according to the federal Energy Information Administration (EIA). At the same time in 2021, it was $3.22; in 2020 is 2.03 US Dollars.
Based on current market and weather trends, the EIA expects general oil heating costs for the average American household to rise 27 percent this winter vs. a year ago. Households that use natural gas are pegged at 28 percent; electricity in 10 percent, and propane in 5 percent.
Such projections are tenuous, according to Muller and other industry observers, given the extreme volatility in the heating energy market. When Saudi Arabia and its oil-producing partners announced production cuts a few weeks ago, fuel prices fluctuated by 80 cents a gallon in a single day.
“It’s crazy,” Muller said. “We haven’t seen anything like that in a long time.”
volatility “is in every possible direction,” said Wes Warehime, chief financial officer at Aero Energy, another major Pennsylvania heating fuel retailer. “The whole industry is really tough right now.”
A widow, Sweigert relies on Social Security for her income. She lives with her daughter, who works full-time and can help with some of the rising costs.
“We bunch up and just try to get out of the really cold weather,” said Sweigert, and he plans to keep the thermostat set to 62 degrees for as long as he physically can.
“If we have really bad temperatures in the teens or single digits, I’ll definitely bump up to 64, but I don’t want to go above that because the way it’s set up now I can get about eight weeks out of the tank,” Sweigert. said.
Pennsylvania offers the Low Income Energy Assistance Program (LIHEAP), a benefit jointly funded by the state and federal governments, which pays eligible households cash to help lower their heating bills. In the 2020-21 winter season, the average household that qualified for LIHEAP received $280 in benefits, according to data provided to PennLive by the PA Department of Human Services.
In the 2021-22 season, when energy costs rise, that number will more than double, to $570 per eligible household.
According to industry experts, demand for heating fuel – especially oil and natural gas – is just outstripping supply, inflating prices as buyers are willing to pay more and more to secure limited inventory.
Years of low energy prices led to a decline in capital investment by producers; The number of natural gas drilling rigs has declined, and oil companies have closed refineries, with domestic refinery capacity. now at its lowest point since 2014, according to EIA.
“We can drill and drill and drill,” Warehime said, “but without refinery capacity, it creates problems with oil.”
The rapid recovery of the US economy from COVID-19 caused whiplash, driven especially by the increase diesel consumption in the trucking industry, although diesel production remains slow due to the pandemic. Although this affects the energy market as a whole, it directly hits the price of heating oil, indicating that the two materials are based on the same petroleum.
With the Federal Reserve quickly raising interest rates to blunt inflation, and the associated risk of recession, energy producers who keep their inventories razor-thin in order not to produce products with high costs now that will sell for less in the future.
This creates less of a buffer between production and retail, said Muller and Warehime, and is the reason why residential customers are now feeling every bump in the market, especially since the Russian invasion of Ukraine created further shortages in Europe.
“That kind of led to the progress we were able to make in the previous months,” Muller said of the war in Ukraine.
High prices have caused energy company margins to skyrocket, until President Joe Biden has floated an excess profit tax designed to force them to invest more earnings windfall to add production capacity, as opposed to using it to bolster their standing on Wall Street.
But despite the profit record, Chevron’s CEO Michael Wirth told the Washington Post earlier this year he still did not expect the United States to add refinery capacity any time soon, given the very long return on investment.
Similarly, natural gas giant Pennsylvania Range Resources said late last month that it plans to take its high cash flow in existing wells and put the money into tripling its share buyback program.
For customers on the receiving end, closely watching the market price and trying to buy at a low point has become more common.
“We’re starting to notice that customers are more in tune with where the prices are because of the volatility,” Muller said. “I think they’re probably more in tune with the market than they’d like.”
For residents like Sweigert, it also means pulling back elsewhere.
“I’m used to being frugal, but that means maybe I won’t run out and get some groceries if I see that we’re low; I’ll wait until my next check comes,” he said.
Friends, neighbors and even his landlord have offered him chips to get him through the winter, Sweigert said, a support network that not everyone can count on.
“I’m very happy,” he said. “Unfortunately, not everyone has that.”