Will This Be a Two Sweater Winter?

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By now it is clear that energy prices are going to be quite a lot higher this winter than last.  It is already visible at the gas pump with motor fuel prices running well ahead of a year ago.  Natural gas prices have skyrocketed as the world faces significant shortages and home heating oil prices are rising along with gasoline and diesel.

This creates a serious problem for most consumers, who do not have room in their budgets for much higher home heating and motor fuel prices, while the overall cost of living moves higher.  Based on my experience with the retail propane industry, during periods of rising prices, many customers limited their purchases to a fixed dollar amount rather than quantities they would have needed to maintain previous consumption levels.  Anecdotal evidence suggests that many families simply turned down their thermostats and wore more and thicker sweaters.

It should also be noted that public utility support programs, and various charities that seek to assist financially pressed families, are likely to be seeking public contributions at record levels.

Investors are going to have to take personal consumption discipline into account when attempting to assess probable demand.  Commercial users of energy are more likely to continue historical demand patterns, while attempting to raise prices to offset increased costs.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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