How the oil shortage will wallop consumers' wallets by this summer

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How the oil shortage will wallop consumers' wallets By this summer, the price of regular gasoline could rise to $1.50 a gallon. And with higher diesel-fuel prices, the cost of groceries could climb, too.

By Wendy Tanaka

INQUIRER STAFF WRITER Gasoline prices continue to rise - and the cost of soup could be next - as worldwide oil supplies continue to dwindle. Experts said the oil shortage could cause prices at the pump this summer to rise to $1.50 per gallon for regular in the Northeast and $2 or more in California.

Shallow oil reserves may also add a few pennies to the cost of basic grocery items, from soup to nuts. Such price increases may be needed to cover higher transportation costs, the result of skyrocketing diesel-fuel prices.

The recent oil crisis has already pinched the pocketbooks of many consumers this winter and likely will continue to do so over the coming months.

So far, the shortage has sent heating-oil prices soaring to nine-year highs and has forced some people to scramble for fuel or go without.

"The modern economy is fueled by oil," said Brian O'Connor, spokesman for Citizens Energy Corp., a Boston nonprofit organization.

Following are some questions and answers about the recent oil crisis and its trickle-down effects:

Question: Why is there an oil shortage and how does it affect fuel prices?

Answer: Experts say it's the supply-and-demand equation at work. The Organization of Petroleum Exporting Countries, with the agreement of several key oil-producing non-OPEC nations, began cutting its production of crude oil, the basis for a host of fuels, in order to stimulate prices, which had hovered at unsustainably low levels. OPEC succeeded: Reducing supply drove up prices dramatically. Last week, crude oil topped $30 a barrel, the highest level since the Persian Gulf war. And higher crude-oil prices push up the cost of producing heating oil, for instance.

Q: Are there any other factors involved in creating such high heating-oil prices?

A: Yes. Aaron Brady, an analyst at Energy Security Analysis Inc. in Boston, explained the domino effect on heating-oil prices this way: "The reason why prices spiked so much was because inventories of heating oil were so low. The reason that inventories were so low was because refining margins have been pretty low for the past year, so refineries have not been running at high rates. The margins were low because of a period of oversupply before [this year]. Then OPEC cut back on crude-oil supplies, forcing prices of crude to very high levels." And the recent cold snap throughout the Northeast caught many heating-oil retailers by surprise. Because the previous three winters had been relatively mild, most retailers had not stocked enough supply.

Q: How much have area heating-oil prices gone up?

A: In Pennsylvania, the average price of a gallon of heating oil jumped 44 percent from $1.10 to $1.59 between the weeks of Jan. 17 and Jan. 24, according to U.S. Energy Department statistics. During the same time period, heating-oil prices in New Jersey rose 42 percent, from $1.21 to $1.72. During the week of Feb. 7, the Energy Department's most recent recorded week, the average price of heating oil reached $1.82 a gallon in Pennsylvania and $2.01 in New Jersey.

Q: Can I get financial assistance to pay my heating-oil bill?

A: If you are a low-income resident, you may qualify for a grant from the federal Low Income Home Energy Assistance Program. For example, a family of four with an annual income of $18,370 can qualify for financial assistance. The deadline to apply for a grant is Feb. 29. To obtain an application, contact your county's Department of Public Welfare.

Q: What about diesel-fuel prices, and why should I care about them?

A: In the mid-Atlantic states, diesel-fuel prices rose about 30 cents a gallon, from $1.39 to $1.69, between the weeks of Jan. 17 and Jan. 24. In the week of Feb. 7, diesel fuel reached nearly $2 a gallon. On Monday, the price drifted down to $1.81. Analysts say high diesel-fuel prices may raise the price of consumer products down the road. This is because the nation's truckers use diesel fuel to transport everything from bread to high-definition TVs. Some trucking companies have passed along diesel-fuel increases to product manufacturers, which, in turn, may increase the prices of their goods to wholesalers and retailers. "When crude oil goes up, everything from gasoline to Vaseline gets more expensive," said O'Connor of Citizens Energy. But Acme Markets Inc. said it does not expect dramatically higher prices on food in the coming months. "A lot of the contracts for merchandise we buy are placed many months in advance," said spokesman Walt Rubel. "So the impact will be minimal, if any. . . . I wouldn't even say [grocery products will be] a few cents higher." Rubel said the cost of transportation is just one of many factors that determine the retail price of products. He noted that storage and utility costs, for example, are other factors in the equation.

Q: What items will become more expensive, and when?

A: No one knows yet.

Q: Why are gasoline prices expected to reach $1.50 per gallon this summer?

A: As of Feb. 14, the average price for a gallon of regular leaded gasoline was $1.36 - just a few hundredths of a cent higher than it was a month ago, U.S. Department of Energy statistics showed. Analyst Brady said gasoline inventories are low right now because of OPEC's production cutback. On March 27, OPEC is scheduled to decide whether its members should produce more crude oil.

Q: Why have prices for heating oil and diesel fuel risen so dramatically since mid-January, whereas gasoline prices have been climbing slowly since last summer?

A: Analyst Brady said demand for heating oil is seasonal, whereas demand for gasoline is steady throughout the year. The price of diesel, he said, has risen so much because the fuel comes from the same supply source as heating oil. Brady said the two fuels are virtually the same product, but heating oil contains more sulfur.

Q: Why do fuel prices shoot up quickly but take months to come back down?

A: Because fuel cannot be generated quickly enough to keep up with demand, Brady said. So it takes time for new supplies to get into the marketplace.

Q: What will bring fuel prices down?

A: A decision by OPEC to allow its members to produce more crude oil. "It's not in [OPEC's] interest to have crude prices so high," Brady said. "When you have oil prices this high . . . it destroys demand, because people cut back in their purchasing. Between now and the end of March, there's not a whole lot that would bring [prices] back down."

Local truck drivers vow to continue their protest over rising costs. City & Region, B8.

http://www.phillynews.com/inquirer/2000/Feb/20/front_page/OIL20.htm



-- Carl Jenkins (Somewherepress@aol.com), February 21, 2000

Answers

Are we the only ones that know about the refinery problems, pipeline problems, and major oil exporters like Venzuela unable to meet the terms of their contract?

nancy

-- NH (new@mindspring.com), February 21, 2000.


Of course, this oil crisis is unrelated to y2k! yeah right...

-- Crono (Crono@timesend.com), February 21, 2000.

gee NH, it would seem so, huh? i can't believe NOBODY GETS THIS? so people--how bad do you think it will be this summer? scale of 1-10?

-- tt (CUDDLUPPY@aol.com), February 21, 2000.

Wow - a $1.50 by this summer? Yesterday in Federal Way (South of Seattle) I saw Union 76 reg. unleaded at $1.47.9 and Texaco at $1.49.9. If this is summer already I want a refund! Makes one wonder just how high it will go...$1.80 if we're lucky - maybe?

-- Valkyrie (anon@pleas.xnet), February 21, 2000.

Are You not getting tired of all this BS,coming from these Expert Gasbags??I've heard just about every flim-flam excuse,regarding the "GAS&OIL Shortage"and the"Reason"for the Price Hikes.Maybe a Congressional Hearing with our beloved Oil Execs would help.It shure helped,when the Tobacco Execs were called in,to assure us that"Tobacco is neither addictive or causes Illness".The Truth and nothing but the Truth,I swear !!

-- Boss Hogg (greasy@T.shirt), February 21, 2000.


tt,

The higher fuel prices are probably starting to shake investor confidence. If the markets continue the downward spiral and the oil prices continue up, I think we could hit maybe a 4-5 by mid-late summer. But then I think we're already experiencing a 2.5 to 3.5 right now.

Gas prices in NE Ohio are the highest I've ever seen. Out where I live, 89 octane is running about $1.599 a gallon.

-- Powder (Powder47keg@aol.com), February 21, 2000.


I'd say a 6 by summer, the 1970's recession/oil crisis...

-- Crono (Crono@timesend.com), February 21, 2000.

While the case of the thinner Wallet will a be Problem no Doubt,think of the bigger Problems the Oil Producers in the middle East are facing.If they keep pumping out the Oil at such high Rate,I can envision,that soon there will be another Access to the Mediterranian See and the Suez Canal will just be another fishin'Hole.Turkey may have already experienced some of the effects of not having the dampening Effects of the Oil beeing pumped out from under their Feet.(just looking under a Rock:))

-- Usee No? (qqq@ooo.com), February 21, 2000.

Does this article look dated in any way to anyone??? Like they just dusted it off and printed it. Had it sitting on someone's desk for a month or so???

Powder and I are seeing gas at the 1.559, 1.659, 1.759 range today (or perhaps higher as I haven't been out yet).

and I don't remember summer coming with 6 inches of white crystaline grass, and temps in the 20-30 range (F). Now if that were 20-30 C I'd be HAPPY to call it SUMMER!

Chuck

-- Chuck, a night driver (rienzoo@en.com), February 21, 2000.


The word from the gasoline suppliers here in NE Indiana (where regular is now $1.46/gal) is to expect prices to go up to around $1.75/gal by this Spring and remain at that level throughout the Summer...

-- PillsBury DoughBoy (pbdb98@yahoo.com), February 21, 2000.


Chuck,

I thought the same thing about that article. Seemed a little dated. One statement struck me as odd: "As of Feb. 14, the average price for a gallon of regular leaded gasoline was $1.36 - just a few hundredths of a cent higher than it was a month ago."

On about Jan 14th, I was seeing gas at $1.299 in my neck of the woods. By Feb 14th it had gone up to $1.459 or thereabouts. Just a little more than a few hundredths of a cent, eh?

I live in Lorain County and work in Huron County, depending on where I go and which stations I look at, I see higher prices in Norwalk than Elyria. Overpriced everywhere, though.

Either way, the lowest dirt-cheap-watered-down excuse for gas that I'd never put in my vehicles is still about $1.499. Clark in Elyria seems to be one of the more (relatively) reasonably priced, $1.529 for 87 octane. BP and Sunoco average about $1.659 for a gallon of the cheap stuff.

In any case, that driving vacation out west later this year may go on hold if the prices don't see some major relief by September. The stabilized gas I have stored now seems like a good investment at $1.099 a gallon.

-- Powder (Powder47keg@aol.com), February 21, 2000.


Chuck: I agree that the article seems dated by at least a week or more. The numbers are way off from what I'm hearing here in northern New England -- $1.75-2/gallon gasoline by summer is the most optimistic forecast I've been given, which could cripple the tourist industry up here. Heating oil is down to the $1.45 range now, from about $1.74 a couple of weeks ago. Diesel is following, altho more slowly.

Somebody has already noted that the only people who seem to understand the reasons for the shortages are on this forum. In all the media articles I've read about the issue, *not a single one* has explored the reasons behind it. It almost seems as if reporters are being told not to push too hard for details, which is of course my media paranoia working overtime :-)

-- Cash (cash@andcarry.com), February 21, 2000.


I just drove 9 hours from Pennsylvania to Quebec today. Got to fill my tank 3 times. I noticed a huge difference in prices the last 2 times I filled up, both at a Mobile station. I filled up with 93 octane, and the one in New Bufalo was at $1.95/gal (service area), then the next time it was at the border of NY/VT at $1.65/gal. I was only half empty but wanted to fill up before getting into Quebec where I knew prices would be higher. How do you explain a 30 cents difference in the same company in the same state? Could it be perhaps price gouging??

-- Chris (#$%^!@pond.com), February 21, 2000.

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