Bloomberg News

Heating Fuels to Miss Biting Cold of Past Two U.S. Winters

December 15, 2011

(Updates prices in fifth and sixth paragraphs, adds comment from long-range forecaster in 11th.)

Dec. 14 (Bloomberg) -- The biting cold of the past two winters in the U.S. may be delayed until January, if it comes at all, easing demand for heating fuels during their peak season.

While cold weather may make brief appearances in much of the U.S. this month, overall December temperatures will be above-normal and that may be a pattern for the winter of 2011- 2012, said Jim Rouiller, senior energy meteorologist at Planalytics Inc. in Berwyn, Pennsylvania.

Heating oil prices jumped to a two-year high last December and gas rose to the highest level in four months as below-normal temperatures and snow boosted demand for the fuels. Natural gas futures today dropped to a 27-month low on abundant supplies and forecasts for milder weather this winter.

“The very mild conditions which have delayed the start of the traditional winter heating season have hit gas prices really hard,” said Teri Viswanath, director of commodity strategies at BNP Paribas SA in Houston, said by phone on Dec. 6. “We have a very weak demand environment.”

Natural gas for January delivery fell 11.2 cents, or 3.4 percent, to $3.167 per million British thermal units at 12:20 p.m. on the New York Mercantile Exchange. Prices reached $3.16, the lowest price for a contract closest to delivery since Sept. 14, 2009. Gas futures have tumbled 28 percent this year.

Heating Oil Down

Heating oil for January delivery fell 7.21 cents, or 2.5 percent, to $2.8567 a gallon on the exchange. Prices have risen 12 percent this year.

Cold and snow last December in the Northeast, heating oil’s biggest market, helped boost prices. The fuel’s price, which is also influenced by crude oil and demand for diesel, reached $2.5437 a gallon in New York on Dec. 31, 2010, the highest price since Oct. 3, 2008. Heating oil rose 9.8 percent that month compared with an 8.6 percent gain for crude.

Gas futures rose to $4.406 Dec. 8, 2010, the highest price since the previous August, on cold weather across most of the eastern U.S. About 51 percent of U.S. households use natural gas for heating, according to the Energy Department.

“We have a totally different weather pattern this year and it will be nothing like we have seen in the past couple of winters,” Rouiller said by telephone on Dec. 6. Cities along the East Coast “will have a lot less snow than we saw last year and be a lot warmer.”

Weather Pattern No-Show

In September and October, meteorologists were expecting a return of the negative phase of the Arctic and North Atlantic oscillations, weather patterns that last year brought polar air into the Midwest and Northeast and trapped it along the East Coast. The systems haven’t shown up this year.

“If you had asked us a couple of weeks ago, we would have said, ‘It’s coming, it’s coming,’” said Travis Hartman, a meteorologist with MDA EarthSat Weather in Gaithersburg, Maryland.

Long-range forecasting models suggest there may be a change in the patterns late in January, Hartman said by telephone today. He said he can’t be certain that cold will come then, only that it’s a possibility.

NYC Warmer

The average temperature for the month in New York through December 13 was 4.3 degrees above normal, according to the National Weather Service. New York’s Central Park reached a high of 62 degrees on Dec. 6 and 7.

Temperatures have been 4.2 degrees above normal in Chicago and 5.8 degrees above normal in Boston this month.

“I don’t know one heating oil trader who is not actually in the heating oil distribution business that is concerned with the weather forecast at all,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The futures trader community has largely written off heating oil demand; it is a depressing aspect of the market.”

The rise in natural gas as a heating fuel and the “stronger focus on diesel-fuel demand and diesel-fuel exports is overshadowing any weather impact on heating oil consumption,” Evans said by telephone Dec. 6.

Gas usage was already lower coming into the heating season because power plants used less of it in August and September compared with 2010 from a combination of mild weather and “the availability of ample Western hydro resources,” Viswanath said in a Dec. 6 note to clients.

Gas Inventories

Gas inventories rose to an all-time high of 3.852 trillion cubic feet on Nov. 18, according to the Energy Department in Washington. Stockpiles in the week ended Dec. 2 were 8.7 percent above the five-year average, the biggest surplus since Dec. 10, 2010.

Supplies have climbed amid production gains from shale-gas deposits from Texas to Pennsylvania. Marketed gas production may climb 6.6 percent in 2011 to a record 65.9 billion cubic feet a day, the Energy Department estimated in its Dec. 8 Short-Term Energy Outlook. Output may rise to 67.72 billion in 2012.

“For several years we have been setting records on gas production, said James Williams, an economist at WTRG Economics, an energy research firm in London, Arkansas. “It’s kind of obvious if it doesn’t get cold it’s not going to hit $4 anytime this season.”

Rouiller said there may not be any sustained cold until at least January and he isn’t confident it will happen then either.

“I think this is the harbinger of winter,” said Rouiller. “It will be well above normal and only go back to typical seasonal-type cold. I think that is the way it is going to stay.”

--With assistance from Christine Buurma and Asjylyn Loder in New York and Barbara Powell in Dallas. Editors: Bill Banker, Charlotte Porter

To contact the reporter on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.


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