Financial Corner

Written by Pat McGonagle, Vice President & CFO

About 5% of households in the United States (U.S.) heat primarily with propane. The U.S. Energy Information Administration (EIA) expects average household bills for those propane consumers will rise this winter because of higher forecast energy prices. Temperatures for the winter of 2018–19 are expected to be similar to last winter suggesting consumption will remain in line with last year. (For this outlook, EIA defines the winter season as the period from October through March.)

What are the factors causing the increase in propane prices in 2018?

The major factors causing the increase is the price of crude oil and exports.

The EIA forecasts that the Brent crude oil price, which is the most significant crude oil price in determining U.S. petroleum product prices, will average $79/barrel (b) this winter, which is $15/b (36 cents/gal) higher than last winter. Brent crude oil prices this winter are forecast to be higher than last winter as a result of gradually tightening global oil balances and concerns over potential supply disruptions in the coming months.

Propane inventories typically build between April and October and begin drawing down in late-September or October as temperatures begin to drop. U.S. propane inventories at the end of September were 8% lower than the previous five-year average for that time of year. The low inventories are primarily the result of strong global demand for propane. The price spread between U.S. propane and overseas markets widened during the current year meaning producers can gain a greater advantage in 2018 exporting U.S. propane.

Although early forecast for this winter indicate temperatures could be close to levels from both last winter and the typical winter from the past 10 years, recent winters provide a reminder that weather can be unpredictable. The winters of 2013–14 and 2014–15 were generally colder than normal, but the winters of 2015–16 and 2016–17 were much warmer than normal.

Fuel expenditures for individual households are highly dependent on the size and energy efficiency of individual homes and their heating equipment, along with thermostat settings, local weather conditions, and market size. Please visit our website at theenergycoop.com to review our energy savings tips before winter weather arrives.