While it may still feel like summer in some parts of the country, knowing colder weather is just around the corner has many in the oil and gas industry keeping a watchful eye on inventory and prices while warning it may cost more to heat homes this year. It's not a crisis, but definitely a concern.
Diesel fuel supplies are lower than normal across the country: 25 million barrels below one-year ago levels, 34 million barrels below the five-year average. And natural gas prices have hit a 14-year high. That all could add up to higher costs for staying cozy this winter.
"As we head into cooler weather, demand starts to rise for heating fuels," said Dennis Kissler, head trader with BOK Financial®. "But supplies of heating oil, diesel and natural gas remain very tight compared to their 5-year averages." Kissler said, as is always the case when it comes to oil and gas pricing and production, there are numerous factors at play.
Experts say the above-average heat this summer kept air conditioners running, which elevated electricity demand and left less natural gas for storage. That depleted storage level in the U.S. and an energy crisis in Europe are two factors contributing to higher natural gas prices.
"In the past few months we have seen a price drop on crude oil and gasoline, as well as diesel, and a lot of that has to do with a seasonal demand decline—the slowdown of vacation travel, which slows fuel demand, and things of that nature," said Kissler.
"Recession fears, rising interest rates, and China's COVID policy all impact pricing," he said. "Also depletions of the strategic petroleum reserve to 40-year lows have been a temporary negative to prices."
Kissler added that as winter approaches, market volatility could easily move back to extremes because current natural gas inventories sit nearly 12% below the five-year average. Also heating oil sits at over 34 million barrels of crude below the five-year average. Limited supply, along with increased seasonal demand, can cause uncertainty and higher prices.
"In the U.S., natural gas prices remain at multi-year highs and European prices are at or near record highs due to Russian conflicts," said Kissler. "So the probability is high that an early winter could ignite natural gas prices which in turn—due to some fuel switching from natural gas to fuel oil—could also be very bullish to heating oil and diesel prices."
Kissler added that there are a few wild cards.
"A lot about availability and price will be determined by how quickly, and with what intensity, winter arrives. Another variable will be the attitude of Russia towards the EU this winter for natural gas and crude supplies," he said. What does it all mean for consumers?
"In short, that it's too soon to panic," said Kissler. "But it's definitely worth keeping an eye on and maybe setting aside a little extra money if you can."
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