Northeast to Face Heating Oil Shortage Refiners Dip Into Stockpile to Make Trucks' Diesel Fuel USA TODAY By James R. Healey and Dina Temple-Raston

June 26, 2000

While politicians and the populace battle to place blame for record-high gasoline prices in Chicago, a worse fuel problem is looming.

Those who heat with oil will shiver this winter -- and pay a premium. Just 15.3 million barrels of heating oil are stockpiled for the East Coast, which uses 75% of the nation's heating oil in the winter. That's well down from 41.3 million barrels on hand last June. And even that healthier inventory wasn't enough to prevent supply problems and high prices last winter.

''We're setting ourselves up for something more apocalyptic than last year,'' frets Tom Kloza, chief oil analyst with Oil Price Information Service, an independent firm.

At the end of last year, heating oil prices in the East averaged $1 a gallon, up from 79 cents a year earlier, and prices briefly touched $2 a gallon some places last winter. The Energy Information Administration (EIA) forecasts $1.11 a gallon in the fourth quarter this year.

Others say it'll be a lot more. ''If we have a cold winter early, we could end up seeing in heating oil what we're seeing in gas prices -- in spades,'' says Bill O'Grady, oil analyst at A.G. Edwards & Sons. ''The problem is, this heating oil thing is an outright shortage.''

He says a gallon will average $1.40, for those who can get it, if crude oil prices stay around $30 a barrel and everything else is perfect -- no refinery fires, pipeline breaks or severe weather.

''There is a potential issue looming out there with respect to inventories,'' says Tom Mueller, spokesman for BP Amoco. ''And we're monitoring that now.''

Others are too.

''We're not forecasting a crisis situation, but stay tuned,'' says Neil Gamson, analyst at EIA, which supplies data to the Department of Energy.

While they aren't broadcasting it, federal officials are privately saying they are worried that shortages in 2000 will be worse than in 1999. Last year was so bad, the Coast Guard cut through ice in Boston to ease the way for tankers. And the administration waived limits on how many hours truckers could drive in order to speed distribution of heating oil.

The problem is relatively simple. Refiners don't have the capacity to meet current needs and also build stockpiles of heating oil. They are using their capacity to produce distillates to make diesel fuel. The hot economy means big rigs are sucking down prodigious amounts of diesel delivering all the cars, appliances and computers that people are buying. Producing diesel that can be sold immediately at high prices is better business than using that capacity to produce heating oil that won't sell for months and won't command big prices unless the weather is harsh.

''Nobody wants to produce heating oil and have it sitting in Boston in July when there's no demand for it,'' Kloza says.

Refiners have a huge shortfall to make up, ''and I don't know how they are going to do that,'' O'Grady says.

''We're trapped. All we can hope for is a mild winter.''

http://denver.petroleumplace.com/egatecom/scream/2000/06/26/eng-usatoday/eng-usatoday_095109_249_801088215318.html

-- Cave Man (caves@are.us), June 28, 2000