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Heating Oil vs. Natural Gas Prices

Natural gas and heating oil prices in New Jersey, a long term view.

Today, many people are wondering if changing heating fuels is a smart way to save. But is it wise to base your decision on what many consider to be an energy bubble? Consider this:

  • In 2008, homeowners were told that heating oil prices could rise to record levels, only to see those prices drop by more than $2 per gallon.
  • In 2002, wholesale natural gas prices were about where they are today, only to rise by more than 200% by 2008.

Rising and falling prices are normal in the commodities market. In fact, the chart below shows how energy market prices rise and fall. There is no such thing as permanently high or permanently low prices.

Where will energy prices go from here?

 

Natural gas prices are currently low because of the imbalance between supply and demand. Supply is up because of natural gas that can be “fracked” from shale, and, partly due to the warm winter, there has not been a corresponding rise in demand—yet. Here are three factors to consider:

  • Power plants are converting from coal to gas, which will cause a significant rise in demand, and as a result, rising prices.

  • Demand for gas is higher overseas. U.S. suppliers are rushing to export our gas to markets where they can earn four to five times more money. A decrease in domestic supply may result in higher prices.

  • Faced with low prices in the U.S., gas suppliers are starting to cut back on production, which will reduce supply, and as a result, may cause price increases.

Quotatio mark...With the cutbacks in production that are coming, and the continued growth in demand, mainly substitution of natural gas for coal, the outlook over several years is for a double or triple in price from where it is now. Quotatio mark

−Billionaire investor Wilbur Ross on CNBC, May 15, 2012

natural gas and heating oil prices nj
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