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Uncertainty to hang over energy markets into 2023

By DANIEL GRANT
FarmWeek

U.S. consumers saw some relief at the fuel pump in recent weeks.

Nationwide, average weekly prices for diesel fuel declined from $5.21 Nov. 21 and $5.14 Nov. 28 to $4.96 per gallon Dec. 5.

The average weekly price of regular gasoline during the same period declined from $3.64 and $3.53 to $3.39 per gallon, the U.S. Energy Information Administration (EIA) reported.

But prices are still up $1.29 per gallon for diesel and 5 cents for gasoline the first week of December compared to last year. So, what can consumers expect through the month and into next year?

“We expect the combination of a slight contraction in the U.S. economy and refinery maximization of distillate fuel production will reduce distillate prices,” EIA noted in its short-term energy outlook released Dec. 6. “However, the EU’s ban on seaborne imports of petroleum products from Russia creates supply and price uncertainty to distillate markets in early 2023.”

The markets also must contend with a recent decision by OPEC to maintain crude oil output cuts of 2 million barrels per day, or about 2% of world demand.

The purpose of the move is to boost the global price of oil, which has fallen recently on fears of demand weakness, particularly in China, according to AAA – the Auto Club Group.

“Gas prices are dropping sharply and are only a nickel more per gallon than a year ago,” said Molly Hart, AAA spokesperson. “But, with oil being the main ingredient of gasoline, OPEC’s move could slow this decline. However, the gas price will likely soon be lower than it was a year ago.”

EIA projects global oil inventories could decline by 200,000 barrels per day the first half of 2023 before rising nearly 700,000 barrels per day the second half of the year. The forecast leaves global oil inventories higher at the end of 2023 than previously projected, which results in a current price forecast of $92 per barrel for Brent crude oil in 2023, down $3 from the November estimate.

Winter expenditures projected to rise

The projection of higher winter heating demand mixed with tight supplies of some fuels could boost the cost for U.S. citizens to heat their homes and businesses this winter, along with other electrical needs.

“Winter energy expenditures for most households likely will be higher than last winter. Expenditures could be much higher if the weather is very cold,” EIA noted in its winter fuels outlook.

EIA estimates winter expenditures could rise by an average of 28% for natural gas, 27% for heating oil, 10% for electricity and 5% for propane this season compared to last year. Total winter expenditures account for all costs, not just home heating, from October through March.

“We expect natural gas prices to increase from November levels as a result of both higher winter natural gas demand and rising exports,” EIA reported in its short-term outlook. “We expect natural gas prices will begin declining after January as U.S. storage levels move closer to the previous five-year average.”

The highest projected electricity prices for this winter are in New England, due in part to capacity constraints on pipelines delivering natural gas into that region.

Nationwide, almost 90% of homes are primarily heated with natural gas or energy. The use of heating oil and propane is more regionally concentrated.

This story was distributed through a cooperative project between Illinois Farm Bureau and the Illinois Press Association. For more food and farming news, visit FarmWeekNow.com.

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