Monday, January, 31, 2000 Oil dealers say rates declining By Susan Young, Of the NEWS Staff

Heating oil and kerosene prices, which shot up in the past couple of weeks, should start dropping soon as additional supplies head toward the state, according to the Maine Oil Dealers Association.

Shipments of kerosene, which was in desperately short supply in some parts of Maine last week, were expected to reach the region this weekend.

About 8 percent of Maine residents heat their homes with kerosene. It is mixed with diesel fuel in the winter to keep the fuel from thickening in low temperatures.

Additional heating oil is also destined for Maine.

In the meantime, businesses such as trucking and logging companies that use a lot of fuel were scrambling to deal with the rapidly increasing costs.

Earlier this month, the cost of kerosene jumped by as much as 50 cents a gallon in some parts of the state. Heating oil prices increased by about 25 cents a gallon. The high prices are only temporary, MODA officials said.

As fast as prices went up at the end of last week, prices will go back down, said Gene Guilford, the associations president.

Guilfords assessment differs from that of the U.S. Department of Energy, which has warned that high heating oil prices may persist this winter.

Guilford blamed the recent price spike on several factors, including a spate of warmer-than-normal winters and Y2K fears.

Because East Coast winters in recent years have been warmer than normal, refiners produced lower volumes of the heating fuels and suppliers stocked less than they did a year ago. When temperatures plummeted in mid-January, some suppliers ran short. This was especially true of kerosene, Guilford said, as some suppliers sent the fuel to Europe, which had a cold snap of its own at the end of last year. When the cold hit the Northeast, suppliers had to divert kerosene back to the U.S. market.

The onset of extremely cold weather on the East Coast also led to an increase in heating oil prices.

Guilford said a similar situation occurred in 1989, when cold weather and low fuel stocks led to rapid price increases. Refiners began pumping oil into the market and the price quickly fell.

The very same thing is taking shape now, he said Saturday. As more product than ever is destined for the Northeast ... the effect will result in oversupply and lower prices again.

Consumers who want to avoid rapid shifts in heating oil prices should negotiate fixed-price plans or budget caps with oil dealers, Guilford said, noting that he failed to take up his local dealer on a plan that had a 99.9 cent per gallon cap.

The state Attorney Generals Office suggested that low-income consumers in need of heating oil contact their local Community Action Programs, their local general assistance offices, the Salvation Army, Red Cross or other local charities.

Underlying the situation are record high crude oil prices.

On Jan. 21, crude oil reached its highest price since the Gulf War on the commodities market. The Organization of Petroleum Exporting Countries has cut back its production over the past year and a half and has held back oil from the world markets in order to keep prices high.

The volatility of the crude oil market prompted the Energy Information Administration, a branch of the U.S. Department of Energy, to warn that high heating oil prices might linger this winter.

Once the current price spike is relieved, we are not out of the woods, John Cook of EIA wrote in a Jan. 24 briefing paper on distilled fuels, which are made from crude oil. Stocks are likely to remain low for the rest of the winter and we could see more price volatility before the cold weather has passed.

The Maine Oil Dealers Associations Guilford, however, said he believes EIAs analysis is faulty because it doesnt take into account that suppliers are already shipping more oil to the New England market.

If [the Energy Department believes] we will be paying $1.60 for heating oil for the rest of the winter, they are flatly and simply wrong, he said.

Because of this uncertainty, Linda Griffin, owner of a logging and trucking company in Jackman, thinks the Legislature should investigate fuel prices. She said the cost of diesel fuel increased 40 cents in one day in Jackman. Late last week, diesel fuel for trucks was selling for $1.99 a gallon in northwestern Maine.

Griffins company, Jackman Lumber, spends $6,000 a week on fuel for its trucks and equipment.

Its a very large cost. Its very, very hard on our industry, she said of the recent high fuel costs. It could be the straw that is going to break the back of some of us.

To help ease the sting, Plum Creek Timber Co., which owns the land Griffins company works on, recently added a fuel allowance to its contract.

There is also disagreement over whether oil from the U.S. Strategic Petroleum Reserve should be released to the market to help ease prices, as Sen. Susan Collins has suggested. Both the Maine Oil Dealers Association and U.S. Energy Information Administration say this is a bad idea because it would have only a minimal and temporary effect.

-- Dad in Maine (goshen@Maine.IHope), January 31, 2000

Answers

Thanks for the update Dad, that's a very comprehensive article. Do you have a link for it online? Great grab, I never heard of the paper. So reporters in Maine still investigate the old fashioned way; cool!

-- Hokie (Hokie_@hotmail.com), January 31, 2000.

http://www.bangordailynews.net/cgi-bin/archives/archives.cfm? t=2&formdate=01/31/2000&formdatequery=equal&endingrow=10&startingrow=1

-- Dad in Maine (goshen@Maine.IHope), February 01, 2000.