August 30, 2000

Fair use for educational/research purposes only!

Hopes Fade for Avoiding High Home Heating Oil Prices By JENNIFER BARRETT NYTimes.com/TheStreet.com, 7:05 p.m.

Although winter is still months away, there are growing fears that it may be too late to replenish U.S. heating oil supplies in time to keep retail prices from soaring once the temperature begins to drop. The latest weekly data did little to ease those concerns. The reports, released Tuesday and Wednesday, showed only a small, if any, increase in crude oil and distillate stocks, from which home heating oil is made.

Instead of the expected three-million-barrel rise in the distillate stocks, the American Petroleum Institute, an industry group, on Tuesday reported an increase of just one million barrels last week. The Department of Energy, meanwhile, said Wednesday that its data showed distillate inventories did not increase at all.

"You can say it hasn't gotten worse," said Heather Rowland, oil market strategist at UBS Warburg. "But the problem is that the numbers have been up and down like a yo-yo, and there's no trend established either way."

Industry analysts say the supply trend must be up, and consistently, before prices ease. Even a one-million-barrel buildup, as reported by the API, will do nothing to deflate prices or fears, said Allan Brady, an associate economist who follows oil and gas for Economy.com.

By the government's estimates, the current level of distillate stock is more than 29 million barrels lower than that a year ago. To bring the market back to the normal range this fall would require consistent weekly increases of five million barrels or more, according to Brady.

To make matters worse, crude oil inventories remain far below normal as well, with the Department of Energy reporting just a two-million-barrel increase in crude oil -- lower than expected, and less than half that reported by the API. Crude oil inventory levels are near 24-year lows.

'That's Not What People Want to See'

Tightening supplies sent crude oil futures contracts soaring to two-month highs this week. Crude oil for October delivery traded as high as $33.40 a barrel on the New York Mercantile Exchange Wednesday, the highest level since June. Crude oil ended the day at $33.32, up 58 cents. The price of crude oil has climbed more than 21% in this month alone.

"Neither of the two major factors affecting heating oil has gotten any better: crude oil prices are up and heating oil stocks are unchanged -- that's not what people want to see," said Jonathan Cogan, an energy information specialist at the Energy Information Administration, the statistical branch of the Department of Energy

While heating oil prices have eased since Tuesday's nearly 10-year high, they remained just under $1 a gallon Wednesday. The September contract for heating oil, which expires Thursday, traded as high as 99.5 cents a gallon before closing at 99.25 cents a gallon, still up 0.66 cents for the day.

"The big unknown is the weather," Cogan said. "If you assume the weather would be like the last year or two, you might be okay, but if you assume it will be a normal winter -- which means colder -- that's where there's concern."

That was made evident on Tuesday, when Secretary of Energy Bill Richardson reported that his department had secured two million barrels of heating oil that would be available in October and held in storage for use if fuel shortages strike the Northeast this season.

"We remain concerned for the approaching winter, but we are well on our way to having some measure of energy insurance in place for Northeast consumers," Richardson said in a statement Tuesday.

Northeast residents rely much more heavily on heating oil than the rest of the country, with more than half of New England users depending on heating oil to keep them warm, according to the EIA.

The Market's Fears and Hopes

But while the reserve may help prevent short-term price spikes in heating oil, it does little to ease overall fears of inadequate supplies and inflated prices.

"The reserve tends to take oil away from what the industry is in a position to supply to the consumer -- it hasn't created additional distillate, it's just redistributed whose hands it's going to be in," Rowland of UBS Warburg said. "What you need is a steady build to more normal level of heating oil."

That is unlikely to happen as long as crude and heating oil prices remain this high. Many refiners suffered in the past few years when they were forced to sell excess inventories at a lower price than they had paid.

There may be some price relief at the end of next week, when ministers from the Organization of Petroleum Exporting Countries meet in Vienna to discuss an increase in production levels.

Many industry analysts expect OPEC ministers to increase oil production by at least a half-million barrels a day at their meeting Sept. 10. News of an official increase may be enough in itself to ease prices and supply fears.

But the increased production ceiling may not have that much of an impact on overall supplies. Most of OPEC's 11 member countries are constrained by limited production capacity and are unlikely to be able to meet any increase in the daily output quota. Only Saudi Arabia, Kuwait and the United Arab Emirates are believed to be capable of further production increases.

http://www.nytimes.com/yr/mo/day/news/financial/30tsc-oil.html

-- Martin Thompson (mthom1927@aol.com), August 30, 2000

Answers

Ah, yes. Too little, too late. At this time of year, I believe, the refineries have built a goodly quantity of home heating oil product. Year after year. This year is different. They are still scrambling to turn out gasoline to keep up with demand.

Am glad I don't live in the Noretheast.

-- R2D2 (r2d2@earthend.net), August 30, 2000.

Northeast? Nuts. How about the Northwest, and a lot of other sections of the country? There is much home heating oil usage elsewhere

-- LillyLP (lillyLP@aol.com), August 30, 2000.

And, how about the hidden factor: Most refineries, browbeaten by Richardson since March to forego their routine maintenance for the sake of churning out enough gasoline to keep a gas line frenzy from developing that would prevent Al Gore from becoming president? Now the bill is coming due. Many big refineries, who normally undergo such routine 3-6 week maintenance in March-April, HAVEN'T EVEN DONE IT YET THIS YEAR. Most will have to do in this Fall.

That stategy may succeed in getting Gore into the White House, but woe be unto the rest of us for this postponement of the invevitable.

-- JackW (jpayne@webtv.net), August 30, 2000.

Also, you've now got to wonder how the latest infrastructure problems in Saudi Arabia will cut into all of this.

-- Billiver (biliver@aol.com), August 30, 2000.

Add to all this confusion the big shortage of natural gas. This makes the small shortage of oil look like a windfall.

-- Wellesley (wellesley@freeport.net), August 30, 2000.

When all of those interruptible contracts kick in this winter - which the gas companies have, that will require many of their industrial customers to switch to heating oil when no gas is available - look out. Chaos could result.

-- Chance (fruitloops@Hotline.com), August 30, 2000.

Of course, all of these coming shortages will be easy for Clinton to explain. He will simply blame the whole thing on Bush and Chaney, two oil men.

The electorate in this country is so simple minded that they will believe him. Won't they?

-- QMan (qman@c-zone.net), August 30, 2000.

I fully expect a new Gore Adminstration will create some new nightmare of a bureaucratic superstructure to mess up the problem still further.

And, no matter what hell we will all have to pay, Mr. Environment will still refuse to let us drill for more oil in Alaska, with its sixty billion barrel reserves, or despoil the magnificence of the coast of the Continental 48 with more oil rigs.

Got to protect those Caribou and Sardines, you know. The hell with people.

-- Wayward (wayward@webtv.net), August 30, 2000.