Oil prices may burn your wallet

October 24, 2004|by ANDREW SCHOTZ

Heating oil usage in the Northeast this winter is projected to drop slightly from last winter, but prices are expected to jump, according to the U.S. Energy Information Administration.

The U.S. Energy Information Administration predicted that heating oil consumption in the region, on average, will drop by 0.3 percent, while prices will go up 28.8 percent.

Steffey & Findlay of Hagerstown was charging $1.40 per gallon for oil at the same time last year, President Phil Adams said.


As of Monday, the company was charging $1.90 per gallon.

Evans said the soaring price of crude oil is driving the market.

The price per barrel topped $55 on Monday. The same barrel last year cost about $32.

In a pamphlet for consumers, the Energy Information Administration offered an explanation:

"If refiners, wholesalers, dealers and consumers have enough heating oil in storage and temperatures do not drop rapidly, prices hold fairly steady (assuming crude oil prices also are not changing much).

"However, a rapid change to colder weather can impact both supply and demand; people want more fuel at the same time that harbors and rivers are frozen or delivery systems are interrupted. During this time, the available heating oil in storage is used much faster than it can be replenished.

"Refineries normally cannot keep up with demand during these cold periods. Wholesale buyers become concerned that supplies are not adequate to cover short-term customer demand and bid up prices for available product.

"In the Northeast, for example, additional supplies may have to come from some distance away, such as the Gulf Coast or Europe. ... During the time that resupply from distant markets is occurring, the supply of heating oil that sellers in the region have in storage drops further, buyers' anxiety about finding heating oil in the short term rises, and so do prices - sometimes sharply - until new supply arrives."

Wholesale companies use a "just in time" delivery approach so they don't order more oil until they need it, said Charles Miller, a research manager for the Maryland Energy Administration. New supplies might take two or three weeks to arrive once they've been ordered, he said.

The U.S. Energy Information Administration said heating oil fluctuations primarily are a concern in the Northeast and central Atlantic areas, where about 78 percent of the users are.

"In other regions, older homes have been converted from oil heat to gas heat, and oil no longer has a noticeable share of the new home construction market," the consumer pamphlet says.

According to The Associated Press, high demand in China and India caught suppliers off guard, and Hurricane Ivan hampered oil production in the Gulf of Mexico.

A Maryland Energy Administration survey shows that oil prices already are starting their winter climb.

Home heating oil that was selling for about $1.50 or $1.55 per gallon in early October was up to between $1.70 and $1.90 per gallon by the middle of the month, Miller said.

A U.S. Energy Information Administration chart shows that East Coast heating oil prices went up more than 7 cents per gallon from the first week of October to the second week.

Over the same period, the average East Coast residential propane price went up about 3 cents, from $1.80 to $1.83 per gallon.

At the same time last year, a gallon of propane cost about $1.48.

Many fuel companies allow customers to buy contracts that lock into prices before they peak.

Other heating prices have risen, too.

Adams said last week that Steffey & Findlay's hard coal price is up $20 per ton over last year, or 14 percent, and soft coal is up $17 per ton, or 13 percent.

In Maryland, a Columbia Gas customer paid about $82.64 in the fourth quarter of last year, but will pay about $88.28 this year, company spokesman Rob Boulware said. The estimate was based on 7,500 cubic feet of gas.

In Pennsylvania, based on 8,600 cubic feet of usage, a customer paid about $87.99 last year and will pay $98.50 this year.

Allegheny Energy's gas rates in the Eastern Panhandle of West Virginia went up in the spring and are scheduled to rise again next month, company spokesman Allen Staggers said.

The average monthly bill was $131.84 in October 2003, based on 13,000 cubic feet of gas.

The average bill rose to $134.48 in April. On Nov. 1, the average bill will go up to $147.48, he said.

Allegheny Energy's electricity rates in Maryland (6.9 cents per kilowatt-hour) and Pennsylvania (6.8 cents per kilowatt-hour) have stayed the same since last year, Staggers said.

The West Virginia rate has increased from 6.6 cents per kilowatt-hour last year to 7.0 cents per kilowatt-hour this year, he said.

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