Oil Squeeze

December 16, 2010
By

Winter oil price predictions aren’t encouraging

There are numerous concerns this heating season for those who heat with fuel oil, but chief among those concerns is the price – which is very high and doesn’t appear to be going down anytime soon.

Though November was quite warm, December has brought cold nights and chilly days – with the exception of a few warmer days this week.

Those enduring cold snaps have been twice as painful due to the fact that heating oil has skyrocketed in price. Right now, prices are hovering in the $3 range and that is up from earlier this month. The statewide average this week is $3.22.

And experts are saying not to expect prices to go down anytime soon.

“It’s up significantly from last year,” said Phil Giudice, state commissioner of the Department of Energy Resources (DOER). “It was in the high $2 range at this time last year and this year we’re in the low $3 range. People should re-up their interest in conservation and energy efficiency and make sure their furnaces are as efficient as possible…[Prices] are not as bad as the record highs we had in July and August two years ago, but the long-term picture is not pretty. [People] shouldn’t expect heating oil prices to go down this season.”

Michael Ferrante (not the Revere School Committeeman), president of the Mass Heating Oil Council, said that the prices are truly frustrating to customers and dealers alike.

“The prices are high now and that’s frustrating to many of us because these heating oil prices are tied to crude oil prices and that’s truly out of everyone’s control,” he said. “That’s frustrating, and frustrating is the right word for it. There’s really no reason why crude oil should be so high. The fundamentals of the market tell us something completely different. There’s plenty of oil. Demand is normal, and there are plenty of inventories of heating oil. This is something we’ve been dealing with now for the last two years.”

A full heating season of $3 a gallon heating oil has many shivering, even if it’s just a regular winter.

Filling a 200-gallon tank at those prices would mean shelling out more than $600. That kind of money doesn’t come easy these days, and fuel oil companies said they don’t relish the idea of refusing people.

“Most of the people who got [federal] fuel assistance in November are pretty much finished with it,” said Jon Hartman of Northeast Oil. “Most people on fuel assistance got between $350 to $360 for this winter. That’s not even a full tank. Everyone’s saying the economy is turning around. Where? What are you going to tell someone who is cold? No? I don’t have the heart to tell someone I can’t bring them oil because they only have $50 and the minimum is 100 gallons per delivery.

“People are telling me they’re out of work, they lost their jobs, they’re running out of oil and only have a little bit of money,” he said. “People who have been buying oil from me for a long time are asking for accommodations. Even people who fill up every seven days are bundling up around the house, wearing sweaters, keeping it colder and shutting off rooms. No one can do this anymore.”

As to what’s causing the price explosion, there are differences of opinion.

Roger Litman, long-time president of North Shore Fuel in Revere, said that it is purely the negative effects of speculation on the oil commodity market – and he blames the government for letting it happen.

“It’s a situation that has little to do with the traditional supply and demand model,” he said this week. “To a large extent, it’s dependent on speculation, which they have tried but have not necessarily succeeded in straightening out. I wish I had a good answer for it all. The speculation has been caused by the major banks stepping in and taking positions. There’s plenty of oil available. The problem is it’s still in a speculative position.”

He said that the problem lies in the government not monitoring the markets in any meaningful way.

“The federal government has, frankly, not done a good job for the last 10 years in monitoring the situation,” he said. “The obscene levels of compensation for speculators are unbelievable.”

However, Commissioner Giudice has a bit different view.

He said there is plenty of heating oil available in the inventories. In fact, he said there is 8 percent more inventory than the five-year average. However, he believes the problem lies in supply and demand.

“It’s all dependent on supply and demand,” he said. “Demand had been slow through November because it was warm. That has changed this December…There’s definitely an influence of speculators and financiers in the market, but they are really responding to the underlying trend – that being the price of the commodity (crude oil). I can actually see speculators pushing down the price of heating oil.”

Additionally, Giudice said that there just isn’t as much new oil discoveries in the world, and that oil isn’t as easy to come by as it used to be.

“The new supplies of oil are not as prevalent as they were as recently as five to 20 years ago,” he said.

Ferrante refuted that, saying there is plenty of oil and that it is really speculators that are killing oil heat consumers.

“I would refute that [we’re running out of oil],” he said. “Anyone who says we’re running out of oil isn’t watching what’s happening in the world…In our lifetime, I don’t think there’s going to be any shortage of petroleum…So, what’s the reason crude oil is so high? Many of us believe speculators are driving it higher by investing in crude to make money.”

Whatever the reason for the increase, Litman said it has changed the way his company is doing business. This year they are no longer offering fixed-price contracts – a long-time staple of the oil business.

Two years ago, during what was considered a panic, many locked in a high price with oil companies and then abandoned that contract when everything collapsed and oil prices bottomed out.

Since then, Litman said the days of the contract are gone.

“We lost more money on that than I care to think about,” he said. “We lost what it will take me between four and 10 years to make up. I don’t do any more contracts. I don’t dare. Once burned, twice shy.”

Most, however, are concerned about one thing: the price. And that includes dealers.

“I’d love to see the price go down,” said Litman. “Do I know if it will? I have no idea.”


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