Heating Oil vs. Natural Gas Prices

What you need to know about oil and gas prices in New Jersey.

Today, many people are wondering if changing heating fuels is a smart way to save. Given current natural gas prices and falling heating oil prices, is that a wise decision? Consider this:

  • Oil prices just recently hit a 13-year low. And heating oil prices are half of what they were just a few winters ago.
  • Heating oil prices have remained low for a year now, due to the combination of a huge surge in oil produced in the U.S., continued weak global demand and a strong dollar.
  • During the winter of 2014-2015, we saw natural gas spot prices rise at the very time oil prices were falling.
  • During the winter of 2013-2014, 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.

Rising and falling prices are normal in the commodities market. And because 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. This is especially true now, with heating oil prices falling by more than $1.50 per gallon in many places across the state.

Where will oil prices go from here?

According to a number of experts, including the Energy Information Administration, oil prices are forecast to stay low through the rest of 2016 and only experience small increases for the next 3 to 5 years. Various factors could affect this, 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 strong likelihood that heating oil prices will stay low for a number of years into the future.

What about natural gas prices?

Limitations on the way that natural gas is distributed continue to create supply challenges—and price concerns. Just last winter, 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:

  1. Power plants are converting from coal to gas faster than expected, causing a significant rise in demand.
  2. 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