Arkansans to see higher energy prices this winter, pump prices cooling down from New Year’s run-up

Arkansans’ can expect higher energy prices throughout the winter, although drivers have recently seen relief from rising pump prices as international crude oil prices have fallen off yearly highs entering the New Year.

According to AAA’s daily fuel gauge, U.S. gas prices have fallen for 10 consecutive days through Thursday (Jan. 19), reaching a national average price of $2.32 per gallon as of today. A year ago, pump prices across the U.S. were well below $2 level, averaging about $1.87 per gallon nationwide.

The slight decrease in retail prices can be attributed to less demand and adequate supply, but this downward dip may only be temporary as the market awaits OPEC’s December monthly output report which is due out later this week. Still, Arkansas’ drivers have not seen any significant changes in gas prices over the last week. On Friday, the average price to fill up a tank with regular unleaded for $2.14 per gallon, only a penny higher than $2.15 per gallon a week ago.

On Thursday, the International Agency (IEA) said it is far too soon to see what level of compliance has been achieved from the output cuts announced by OPEC and eleven non-OPEC producers during the ongoing probation period. In doing so, the IEA revised its end-of-the-year 2016 estimates for global oil demand to 1.5 million barrels per day.

On Nov. 30, OPEC and non-member Russia agreed at the cartel’s 171st meeting in Vienna to the so-called “Algiers Accord,” which sets a new production target of 32.5 million barrels a day for 140-member states. OPEC produces a third of global oil, or around 33.6 million bpd, and the deal will reduce the cartel’s output by 1.2 million bpd.

“The coming weeks will provide more clarity and in the meantime developments elsewhere in the oil supply/demand balance are very intriguing,” the IEA said in a statement. “Once again we have revised upwards our estimate for global oil demand growth in 2016: we now see growth at 1.5 million barrels per day, with most of the revision contributed by stronger European demand, mainly in LPG and diesel.”

Going forward in 2017, the IEA said it still expects the rate of growth for global demand to fall back to 1.3 million barrels per day, albeit this is slightly above the average rate seen in this century of 1.2 million barrels per day.

“The prospect of higher product prices – assuming that the cost of crude oil rises in 2017 – plus the possibility of a stronger U.S. dollar are factors behind our reduced demand growth outlook for this year,” the IEA forecasted.

In Arkansas, motorists are seeing highly volatile pump prices, ranging from prices as low as $1.92 per gallon in North Little Rock to locations in Terrell and Hope where drivers are forking out $2.69 and $2.79 per gallon, respectively, according to GasBuddy.com. Also, prices in the Natural State are well above a year ago, when drivers were paying $1.65 per gasoline for regular unleaded, AAA data shows.

Pump prices in the state’s metropolitan areas range from a low of $2.10 per gallon in the in the Fort Smith area and Northwest Arkansas to a high of $2.19 per gallon on both sides of the state line in the Texarkana area. In central Arkansas, motorists in or traveling through Little Rock are seeing prices on average of $2.14 and $2.17 per gallon, respectively.

Meanwhile, in its recent yearly winter fuels outlook, the U.S. Energy Information Administration (EIA) says average household heating fuel expenditures this winter, which runs from October through March, are expected to be much higher than a year ago. Temperatures this winter, based on the most recent forecast of heating degree days (from the National Oceanic and Atmospheric Administration (NOAA), are expected to be much colder than last winter east of the Rocky Mountains, with the Northeast and Midwest 17% colder and the South 18% colder.

Since nearly half of all U.S. households heat primarily with natural gas, the EIA expects households heating primarily with natural gas to spend $116 (22%) more this winter compared with last winter. However, forecast average expenditures of households heating with natural gas this winter will be comparable to those in the five winters prior to last winter, the EIA said.

The increase in forecast expenditures compared with last winter is driven by comparatively similar increases in price and consumption. Residential natural gas prices are expected to average $10.37 per thousand cubic feet (Mcf), 11% higher than last winter. Prices at this level would be the highest since the winter of 2010-11, and consumption is forecasted to be 10% higher than last winter, officials said.

“The increase in consumption is based on a return to temperatures that are closer to normal following last winter’s El Niño weather pattern that resulted in winter temperatures that were 15% warmer than the previous ten-year average nationally,” the EIA said.

Under a 10% colder scenario, EIA projects natural gas-related heating expenditures to be 31% higher than last winter and 7% higher than the base case. In that scenario, consumption and prices are 19% and 10% higher than last winter, respectively. Under a 10% warmer scenario, EIA projects spending to be 12% higher than last winter.

Households heating primarily with electricity are forecasted to spend an average of $49 (5%) more this winter, as a result of 5% higher consumption, including heating and non-heating uses of electricity, and about 1% higher residential electricity prices than last winter. Among U.S. households, 39% rely on electricity as their primary heating source, ranging from 63% in the South to 15% in the Northeast.

In the 10%-colder-weather scenario, projected electricity expenditures are $81 (9%) higher than last winter, as consumption would be expected to be 9% higher. Residential electricity prices would not rise immediately, but the effect of colder temperatures would pass through to retail electricity rates over the succeeding months of 2017. In U.S. households that rely primarily on heating oil for heating purposes, primarily in the Northeast, the  EIA expects households heating primarily with heating oil to spend an average of $378 (38%) more this winter than last winter, reflecting retail prices that are 20% higher and consumption that is 15% higher.

In the 10%-colder-weather scenario, projected expenditures are $556 higher than last winter, with prices that are 24% higher than last winter and consumption that is 25% higher.

Lastly, in the nearly 5% of all U.S. households that heat primarily with propane, the EIA expects these households to spend less on heating this winter than in eight out of the past 10 winters, but more than last winter, when both heating demand and propane prices were low.

EIA expects that households heating with propane in the Midwest will spend an average of $290 (30%) more this winter than last winter, reflecting prices that are about 14% higher and consumption that is 13% higher than last winter.

The number of households using cord wood or wood pellets as the primary residential space heating fuel has increased by 26% since 2005, to about 2.5 million households in 2015. About 8% of households use wood as a secondary source of heat, making wood second only to electricity as a supplemental heating fuel.