Consumers Face Record Heating-Oil Bills

Cold weather hasn't hit the Northeast yet, but record heating-oil prices mean high heating bills are on the way for many residents.

About eight million U.S. households -- largely in New England and the Central Atlantic states -- rely on heating oil to run their furnaces each winter. Last week, heating-oil futures hit a record of $2.36 a gallon, up more than 40% since the start of the year.

Weather forecasters are predicting a colder winter than last year, despite the unseasonably warm October in the Northeast. That's going to lift heating costs no matter what fuel a homeowner uses. Consumers who use heating oil, though, will feel the most pain. Their winter heating bill for the season is expected to average $1,785, compared with $891 for households that use natural gas, according to the Department of Energy. Unlike crude oil, natural-gas prices have been relatively restrained in the U.S. this year.

Heating-oil prices are soaring because the fuel is refined from crude oil, which also has hit record prices in recent weeks.

Political unrest in places like Nigeria and Iraq, combined with Wall Street investors placing financial bets on higher energy prices, have lifted crude prices 43% since the beginning of the year. Crude fell 75 cents to $85.27 a barrel yesterday in New York Mercantile Exchange trading.

Analysts say that demand for heating oil so far has been lower than last year, and inventories are sufficient. But that hasn't seemed to matter as crude prices keep mounting.

"The price consumers pay is a function of global conditions," says Mark Wolfe, executive director of the National Energy Assistance Directors Association, a group that represents directors of state programs that help low-income consumers pay their energy bills. "If the Turks invade Iraq, suddenly your price goes up 50%."

As recently as five years ago, heating oil cost just 75 cents a gallon in the spot market. But supplies of refined products have become historically tight, as economic growth in developing countries like China and India has absorbed extra capacity.

For residents faced with a nasty heating-oil bill, the easiest way to save money is conservation. Lowering the thermostat at night or closing off rooms that aren't being used can help. Consumers also can consider switching to a more energy-efficient furnace, taking advantage of state programs that offer subsidies for this purpose, says Mr. Wolfe. Combined, measures such as these could reduce heating-oil consumption by up to 30%, he says.

Shopping around for the best price can shave off additional dollars from the energy bill. Heating-oil prices vary from supplier to supplier, sometimes by up to 30 cents a gallon, says Mr. Wolfe. Joining a heating-oil-purchasing group can also save anywhere from 15 cents to 25 cents a gallon, says Andrew Heaney, president of Heat USA, a New York-based buying association that gets better prices for consumers by buying in bulk.

Many consumers have switched from heating oil to natural gas, but buying a new furnace or converting an old one can cost thousands of dollars.

Consumers can also protect themselves against a potential rise in coming months by signing a contract with their supplier to lock in current prices for the season. But that's essentially a bet on the direction of heating-oil prices, which could backfire. Customers will pay a premium to dealers, who have to hedge themselves in case prices go up. And if prices drop, consumers will be stuck paying the higher prices they locked in.

Mr. Heaney of Heat USA says that in over 10 years in the business, he has almost always guessed wrong whether heating-oil prices will go up or down. "The market and the weather have their way of making their own story," he says.