The article below, from the Wall Street Journal, should get all of us thinking. Rather than blame heating and diesel oil shortages in the Northeast on OPEC crude reductions or on cold weather (it's cold most winters in the Northeast.....the last two years were abnormal), the writer looks squarely at those people who refused to take steps that could protect them or their customers.....and they are us.

Let's face it, our system is capable of providing petroleum products continually during normal cold winters. Why was this one such a big deal? Because we went into it with empty tanks.

Blame it on greed and on shortsightedness, on the parts of companies and individuals. Then ask this question: "What would it be like if Y2K had really been a problem? What woulds it be if refinery output dropped to 30 or 40% of capacity, rather than 85%? What would it be like if the power had gone off in the Northeast>"

And then, give thanks that this did not happen and that it is only this bad.

Sorry, I don't have a link for the article -- I copied it from Downstreamers forum.

Dow Jones Story on Fuel Shortages and Hedging

NEW YORK -(Dow Jones)- The U.S. Northeast's plunge into a deep winter freeze last week found enough heating oil and diesel distributors short of supply that the resulting buying frenzy sent prices soaring, energy analysts said.

However, the scramble for barrels and the financial blow it dealt to distributors didn't have to be, they said. Had there been more pre-season buying, or hedging with futures, distributors would have had more insurance to protect themselves.

"Some suppliers rolled the dice this winter and lost," said Peter Beutel, an energy trading advisor with Cameron Hanover in Connecticut, which has several heating oil diesel distributors as clients. "All at once, a lot of people had to buy."

The nearby February contract, while down sharply Monday to 86.35 cents a gallon, had jumped 44% to 93.50 cents in eight straight sessions ended Friday, the largest short-term gain since the Gulf War. The contract was higher again Tuesday trading around 90 cents a gallon, or 40% over prices seen in early January.

In the New York Harbor market , the wholesale heating oil price that calls the tune for the entire Northeast soared well above $1.20 a gallon, where it was holding Tuesday. Diesel fuel prices have been tracking heating oil and were trading at around $1.26 a gallon.

Several heating oil distributors contacted by Dow Jones Newswires said they were making constant trips to heating oil terminals, and paying up for supply. "I'm shocked at what we have to pay," said Leonard Bicknell, president of Alvin Hollis, a heating oil supplier in South Weymouth, Mass.

However, there were opportunities to buy price protection before last week's winter blast. Mobil Corp., a large wholesaler of heating oil in the Northeast, offered plans that allow heating distributors to lock in prices prior to the heating oil season for a premium, but the company has seen declining participation in the program, said spokeswoman Betsy Eaton.

Alan Wright, director of petroleum supply, transportation and trading, at Pilot Corp., a large wholesaler of diesel fuel, said the number of trucking outfits participating in a set- price plan offered by his company is "at its lowest point in five years."

Suppliers also had other means of protecting themselves, analysts said. Large distributors of heating oil and diesel could have bought supply back in spring and summer when prices were relatively inexpensive, but chose not to do so to avoid the costs of storage, said several trading advisors.

Many smaller distributors that don't have large storage facilities could have locked in supply a few months ago in the futures market , when prices were comparatively cheap, by buying forward heating oil futures , such as December or January, but "they didn't see the need to incur the cost of hedging," said John Kilduff, senior vice-president of energy risk management at Fimat USA Inc. in New York.

And what a difference hedging could have made. For instance, if a distributor bought a December heating oil position in early August at around 52 cents a gallon, those low-priced heating oil barrels would have been delivered to him in early January, just in time for the spike in demand.

Why not pay up for the protection hedging offers?

Cameron Hanover's Beutel said many suppliers waited in vain for a correction in the market to set their hedges, but it never came. Heating oil futures saw a near constant rally between last February's low of 29.20 cents a gallon to an early January 2000 peak of 70.40 cents.

In addition, warm winters in the past two years and balmy temperatures this past November and December lulled many suppliers into a false sense of security, Pilot Corp.'s Wright said. Others soured on the idea of hedging, after locking in supply at certain prices over the last two winters, only to watch values decline sharply, he added.

Indeed, the winter of 1997-1998 and 1998-1999 saw heating oil prices drop uncharacteristically, as unusually warms winters combined with higher OPEC output and falling demand in financially strapped Asian economies to pressure the market . "A lot of people got sick last year after they locked in diesel prices at 50 cents a gallon, then watched them slide below 30 cents," Wright said.

Distributors weren't the only ones that gambled this winter. End users too decided to forego set- price deals, said distributors, who hedged only as much as was needed to cover the few end users who took advantage of such plans.

Raymond Hart, president of Hart Petroleum, a Long Island-based heating oil retailer, said he only had about 15% of his supply hedged entering this winter, based on an unusually low number of home-heating customers willing to lock in prices. "In the last two years, I had about 85% participation in the program," he said.

There appears to be a bit less panic this week, as forecasts call for less severe temperatures next week, and rumors circulate that an armada of heating oil cargoes are being lured to the U.S. by the high prices.

However, distributors aren't out of the woods yet.

"If the weather remains, the question is will those that have heating oil again be able to squeeze those that don't," said Thomas Blakeslee, an energy analyst at Eildon Associates, a Baltimore-based energy marketer.

-By Matthew F. Gallagher, Dow Jones Newswires; 1-201-938-4426, matthew.gallaghe-@dowjones.com

-- rocky (rknolls@no.spam), February 03, 2000

italics off

-- rocky (rknolls@no.spam), February 03, 2000.

Nice to see you back here for a while, Rocky. Good article, too.

-- Anita Evangelista (ale@townsqr.com), February 03, 2000.

I believe it was Billy Richardson a week or so ago who accused panicky homeowners struggling to keep their tanks topped off of "hoarding" oil.

-- Brooks (brooksbie@hotmail.com), February 03, 2000.

I thought we were assured that the suppliers had stockpiled in anticipation of Y2K?

-- human bean (how@dee.pod), February 03, 2000.

1). The oil companies said they would stockpile for the rollover.

2). The public relaxed and got comfortable with the feel good message.

3). Then the oil companies said they had decided not to stockpile, because of end-of-year corporate inventory taxes.

4). The public didn't notice, because they were asleep, dreaming of sugar plums and Santa.

5). Now there are shortages that could have been avoided.

6). Will they learn anything from this ? Maybe with a little help.

Too bad the Brainstream Media has such a short and trivial memory.

-- snooze button (alarmclock_2000@yahoo.com), February 03, 2000.

Recall many oil companies stated a Y2K Fix on Failure strategy,

Recall Enron's 10Q disclosure.

Recall supply problems are hitting natural gas, propane, fuel oil, gasoline and diesel; the gases in particular are not easily stockpliled but are produced domestically on a continuous basis.

Recall recent pipeline problems.

Recall rumors of probelms in Saudi Arabia on crude supply.

These chickens have come home to roost. Not a worst case scenario but not a bump in the road either. Unfair to blame suppliers' shortfall on distributors and consumers.

-- Bill P (porterwn@one.net), February 03, 2000.