In November of 2022, with home heating oil prices nearing six dollars per gallon due to supply chain issues and the war in Europe, Connecticut residents and lawmakers alike were worried what the winter would bring.
Those fears, however, failed to materialize as the price of home heating oil continued a downward trend. According to the U.S. Energy Information Administration, home heating oil in Connecticut is now $4.31 per gallon for residential and $3.05 wholesale.
Although the war in Ukraine, which diverted massive amounts of diesel fuel from the United States to Europe, continues, the abnormally warm winter has tamped down prices and given residents and businesses a reprieve from what could have been a very costly winter.
“Obviously the war is still raging on, and I can tell you that my observation is that what is driving the decrease in prices is entirely weather-driven,” said Chris Herb, president of the Connecticut Energy Marketers Association. “What’s happened is even though we had some tightness of supply leading into the season and the prospect of much higher prices, the winter never really materialized and there was nowhere to put even that tight supply.”
Herb says it wasn’t only the warm weather that contributed to the decrease; residents also took “evasive measures” to avoid paying those high prices by setting their thermostats lower than they may have otherwise.
“There was some natural conservation that was happening,” Herb said. “We saw people keeping their houses a little cooler and then, on top of that, the temperature in general wasn’t conducive to people using as much fuel.”
Part of the reason the prices were so much higher in the fall months leading into winter was speculation on the part of Wall Street investors who believed the tight supply of oil would combine with typical winter usage. Therefore, the cost of oil futures rose dramatically, Herb says.
The warm winter led to oil supplies being more robust than anticipated and led to a market correction on the price. “It is supply and demand 101 is what occurred, and it was because of mother nature,” Herb said.
This winter in New England has seen a couple cold snaps, but they were short-lived. The most recent was an arctic air mass that moved in over New England, plunging temperatures with wind chill to some of the lowest recorded. That snap, however, lasted only two days before temperatures were back in the forties and fifties.
That was also likely great news for electricity in New England. New England primarily relies on natural gas for electricity generation, however, there is not enough natural gas supply to fully power homes and businesses during those cold snaps and during those times natural gas is supplemented with oil.
During the arctic freeze, February 3 through the 5, oil skyrocketed in usage by ISO-New England, accounting for 31 percent of electric power generation and making it the most used fuel for electric generation. The switch to oil for backup is to prevent the possibility of rolling blackouts, something ISO-NE and electric suppliers have warned about in Connecticut for several years due to constraints on natural gas.
Lawmakers throughout New England, however, have been attempting to turn away from natural gas and other fossil fuels and instead turn to more renewable electricity generation sources like wind power. Those sources currently make up a small fraction of energy generation. Wind power, for instance, makes up only 3.7 percent of electricity generation on a typical day.
Herb says the warm winter likely prevented those rolling blackouts, freeing up more oil for backup during those cold snaps. Had New England experienced a cold winter, those blackouts could have been a possibility.
“Oil was the primary fuel being used for electricity because there was not enough natural gas or renewables to keep the lights on,” Herb said. “In the absence of oil, there would have been black outs. There is no doubt in my mind.”
Herb says Connecticut’s push in the past for natural gas to be used for residential heating instead of oil created further constraints on the electric generation system because home heating demand must be met.
“The only place they can curtail natural gas is on electric, so when that happens, they have to look to other sources, and since there is no excess capacity for wind and solar, the only place they can go is oil and coal,” Herb said.
Connecticut lawmakers have been looking for ways to decrease energy prices in Connecticut, including possibly importing hydropower from Canada to help ease electricity prices in Connecticut and decrease reliance on fuel sources that are subject to international tensions such as the war in Ukraine.
Connecticut’s electricity prices are among the highest in the nation, more so after Eversource and United Illuminating announced supply rate increases upwards of 50 percent this year, which elicited outcry from public officials with the tacit admission there was little they could do about it.
Had it been a colder winter, the use of oil to generate electricity would also have driven up the cost for residential home heating oil, creating further supply constraints. Although spring is more than a month away, for home heating oil suppliers the season of heavy demand is nearly at an end.
“From our industry standpoint, the demand curve is petering out, we have two more weeks left of what we consider the demand season and after that, it’s whatever the spring brings,” Herb said. “It’s basically over in the next two weeks for us.”