U.S. households are expected to spend more on energy this winter, than last winter, especially those that primarily heat with propane or heating oil, according to the U.S. Energy Information Administration (EIA).
The EIA released Wednesday (Oct. 13) the Winter Fuels Outlook that bases the increased spending on expectations of high retail energy prices, many of which are at multiyear highs, and more energy consumption per household than in the previous winter. Many energy prices hit multi-year lows last year as a result of the COVID-19 pandemic.
“As we have moved beyond what we expect to be the deepest part of the pandemic-related economic downturn, growth in energy demand has generally outpaced growth in supply,” said EIA Acting Administrator Steve Nalley. “These dynamics are raising energy prices around the world.”
Retail energy prices for several fuels have reached their highest point in several years. Wholesale prices of natural gas, crude oil and petroleum products have risen because fuel demand has increased from recent lows faster than supply, partly as a result of the economic recovery after the first year of the pandemic. The increases in wholesale prices are being passed through to consumers, according to the EIA.
Changes in wholesale propane and heating oil prices pass through to retail prices more quickly than changes in wholesale natural gas or electricity prices pass through to consumer rates. Also, many propane and heating oil users purchase supplies before winter and refill as needed.
The EIA’s projections for residential energy consumption are based on weather expectations from the National Oceanic and Atmospheric Administration (NOAA). Heating degree days are used as a measure and reflect temperature deviations from a base temperature of 65 degrees Fahrenheit. More heating degree days indicate colder weather.
Heating degree days are expected to rise by 3% this winter, from last winter, indicating colder temperatures. The increase in heating degree days is consistent across the United States. Whether the weather is cooler or warmer than NOAA’s forecast, the EIA expects U.S. households to spend more this winter because of the higher fuel prices.