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. Given the current prices of heating oil and natural gas, as well as short-term outlooks, is that a wise decision? Consider this:

  • The combination of a huge surge in oil produced in the U.S., weak global demand and a strong dollar have made heating oil prices plunge to their lowest level since 2009.
  • During the winter of 2013-14, natural gas prices spiked because pipelines could not distribute enough fuel. At one point, the spot price of natural gas was higher than the equivalent retail price of heating oil, when compared on a Btu by Btu basis.
  • During the winter of 2014-15, we saw natural gas spot prices rise at the very time oil prices were falling.

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. Switching fuels to capture a temporary price advantage in one fuel has always been like trying to time the stock market.

Where will oil prices go from here?

As always, it remains to be seen how oil prices will play out in the years ahead due to unpredictable factors, including severe weather, the state of the economy and world events affecting energy production. But with U.S. oil production levels surging strongly, there is a better chance that oil prices may stay at lower levels in the future.

What about natural gas prices?

Limitations on the way that natural gas is distributed continue to create supply challenges—and price concerns. Heading into the winter of 2014-15, natural-gas prices had reached their most expensive point in more than a decade because of concerns that pipelines may not be able to distribute enough fuel. (Source: Bloomberg News, 10/6/14)

Other factors raising concerns about the direction of natural gas prices include:

  • Power plants are converting from coal to gas faster than expected, causing a significant rise in demand.

  • High demand for gas overseas. U.S. suppliers have been rushing to export our gas to markets in Europe and Asia, where they can charge more money. A decrease in domestic supply may result in higher prices.

“(Natural) gas surged to a record $135 last January as frigid weather boosted demand beyond what pipelines could deliver.”

− Bloomberg News, 10/6/14

Heating Oil Spot Prices

natural gas and heating oil prices nj

Heating oil prices have fallen to their lowest level in six years.

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