A year after a winter that put much of the transportation industry in a tailspin, projections for the upcoming winter are coming as a welcome relief.
The Energy Information Administration (EIA) is projecting that expenditures for natural gas, heating oil, electricity and propane will decrease this winter after last year’s frigid winter that was 11 percent colder than the 10-year national average.
Projected average household expenditures for propane and heating oil are 27 percent and 15 percent lower, respectively, because of lower heating demand and prices – contributing to natural gas and electricity expenditures that are 5 percent and 2 percent lower than last winter, the agency said.
On top of that, driven in large part by falling crude oil prices, U.S. retail prices for both regular-grade and diesel are projected to keep falling, too.
Prices at the pump, already the lowest in four years, should continue to fall, said Tom Kloza, GasBuddy’s chief oil analyst. He recently cut his forecast for the national average price this fall to between $2.95 and $3.10, from his previous call of $3.10 to $3.25.
Prices, said AAA spokesman Michael Greene, are in “freefall.” Prices on average have tumbled 15 cents a gallon in October and are down about 50 cents a gallon from the summer peak in June.
Overall, the agency EIA expects the U.S. retail price for regular-grade to average $3.45 per gallon for 2014 before inching down to $3.38 per gallon in 2015 – compared to the average of $3.51 per gallon posted for 2013.
Meanwhile, while diesel fuel prices averaged $3.92 per gallon in 2013, that’s projected to decline down to an average of $3.85 per gallon for all of 2014 and then $3.80 per gallon in 2015.
EIA believes that weaker global demand for crude oil combined with rising U.S. oil production and warmer-than-last-year winter temperatures are behind this projected falloff.
Weakening global demand pushed down the critical North Sea Brent crude oil spot prices fall to an average of $97 per barrel in September – the first month Brent prices have averaged below $100 per barrel in more than two years – with EIA predicting that Brent crude oil prices should end up averaging $98 per barrel in the fourth-quarter of 2014 before rising back up to $102 per barrel in 2015.
Again, rising U.S. crude oil production is also helping lower global oil prices and reduce imports as well, as domestic production averaged an estimated 8.7 million barrels per day in September – the highest monthly production since July 1986.
Total crude oil production – which averaged 7.4 million barrels per day in 2013 – is expected to climb up to an average of 9.5 million barrels per day by 2015. If realized, the 2015 forecast would be the highest annual average crude oil production since 1970.
This is, in effect, consumer-spending stimulus: Lower gas prices mean more disposable income for American households. The New York Times, citing energy expert Tom Kloza, estimated that the average household will see “annual savings of $120 for every 10-cent drop in the price of gasoline.” Those savings take some time to work their way into Americans’ pockets, but are significant nonetheless.
Dean Baker of the Center for Economic and Policy Research thinks that even as the U.S. economy struggles, dropping oil prices are a good thing, even if they push too-low inflation into far-scarier deflation.
“If we have a mortgage debt will it be harder to repay our mortgage now that we have to pay less to drive our car or heat our house? If companies are thinking of investing in expanding a factory or new line of software will lower energy prices and possibly lower long-term interest rates make this less likely? If we exclude the situation of commodity producers, this is a positive for the economy,” he said.