Heating Oil Price Trend for September 12: -5¢
European Central Bank executive board member Juergen Stark resigned on Friday after protesting the bank’s bond purchasing program. As the second German to leave the ECB, Stark’s move stirred talk of dissention and fueled fears Europe’s top leaders won’t be able to contain Greece’s debt crisis. (image: au.ibtimes.com and Nicholas Whitaker for HeatingOil.com)
Oil prices dipped on Friday as the resignation of a top German banking official fueled fears that Europe’s debt crisis could worsen and spread. Heating oil prices slipped five cents while crude dropped $1.81 to settle at $87.24 a barrel on the NYMEX.
Last week prices jumped when Germany’s Federal Constitutional Court agreed to participate in further bailout measures for Greece. Because Germany is one of Europe’s biggest, strongest economies, the news calmed investors’ fears that Greece’s debt crisis would cause a continent-wide financial collapse. On Friday, however, one of Germany’s leading representatives to the European Central Bank resigned over a policy dispute, stoking the familiar fears and weakening the euro against the dollar. In fact, it was the euro’s lowest reading against the Japanese yen since 2001, causing some investors to pull away from oil markets.
Finance ministers and central bankers gathered in France over the weekend to discuss ways of diverting a potential Greek default, which would be felt throughout the continent and shake the global economy. A solid action plan to contain the crisis could push prices higher this week, but U.S. officials don’t expect the meeting to produce any serious results just yet.
In the Gulf, several oil companies evacuated nonessential personnel from rigs and platforms to prepare for Tropical Storm Nate. The National Hurricane Center predicted the storm would strengthen to a full hurricane before hitting Mexico on Sunday. Federal officials reported around 87,000 barrels of oil are still shut-in.
The average retail heating oil price in the Northeast is five cents lower than Friday’s average price.
Heating Oil Price Trend for September 8: +6¢
In a very tight vote on Wednesday, the Second Senate of the Federal Constitutional Court of Germany agreed to participate in further bailout packages for Greece. Since Germany is one of Europe’s biggest economies, the move calmed fears that Greece’s debt crisis could spread to other eurozone members. (image: telegraph.co.uk and Nicholas Whitaker for HeatingOil.com)
Oil prices spiked to their highest level in over a month on Wednesday, riding on climbing equities markets and rumors that President Obama’s jobs plan could include a $300 billion stimulus initiative. Heating oil prices jumped six cents and crude rose $3.32 to settle at $89.34 a barrel on the NYMEX.
With election season looming, Obama’s speech on Thursday is expected to deliver a $300 billion - $400 billion stimulus proposal to boost the flailing economy and his approval ratings. Analysts believe an extension of expiring unemployment benefits and a one-year extension of a payroll tax cut for workers will be included in the plan. The White House is also said to be considering a tax credit for businesses that hire the unemployed.
In other market factors, fears about whether Europe will be able to contain Greece’s debt crisis are keeping pressure on oil prices, but a weak dollar helped push them upwards. Germany’s Federal Constitutional Court agreed to lend further assistance in resolving Greece’s financial struggles, pushing the euro stronger than the dollar.
Workers have returned to platforms and rigs in the Gulf of Mexico after Tropical Storm Lee caused evacuations and disruptions in production over the weekend. However, weather forecasters have warned that yet another storm in the Gulf could be upgraded to a tropical depression within the next couple days.
Prices may swing again this week as traders take cues from oil inventory reports from the Department of Energy and the American Petroleum Institute, which came out late Wednesday after being pushed back for Labor Day.
The average retail heating oil price in the Northeast is six cents higher than Wednesday’s average price.
Heating Oil Price Trend for September 7: +1¢
Thousands of Italians protested in the streets against a new round of austerity measures on Tuesday as European stock markets hit their lowest levels in two years. However, Europe’s top leaders remain adamant that they won’t allow Greece’s debt crisis to spread to other larger nations. (image: telegraph.co.uk and Nicholas Whitaker for HeatingOil.com)
Oil prices barely moved on Tuesday as traders responded to sour economic outlooks for the United States and Europe. Heating oil prices gained a penny and crude climbed just 43 cents to finish at $86.02 a barrel on the New York Mercantile Exchange.
Fears of economic collapse aren’t new oil market influences. However, speculation of a double-dip recession in the U.S. and Europe’s ongoing sovereign debt crisis are stirring new fears the financial turmoil could spread to Asia. Major U.S. stock indexes are still falling from Friday’s report from the Labor Department revealing the country added zero new jobs in August. Stock indexes and oil prices slipped even further on Tuesday as traders became uneasy Greece’s debt crisis could spread to stronger, larger eurozone nations but rebounded when Greek leaders signaled they’d speed up the process of reforming Greece’s economic policies.
Economists are anxiously awaiting President Obama’s Thursday jobs address to Congress, as well as upcoming announcements from Federal Reserve Chairman Ben Bernanke about further stimulus measures.
In other market influences, Libya’s Arabian Gulf Oil Company said they’ll be producing around 200,000 barrels a day as early as October, sooner than officials originally expected. Despite the Libyan rebels’ recent victory in Tripoli over estranged former leader Moammar Gadhafi, it may take quite some time before Libya is back to exporting the 1.3 million barrels of oil that it was before the civil war. And, traders are keeping an eye on oil fields in the North Sea, where maintenance work could cause some delayed deliveries.
The average retail heating oil price in the Northeast is one cent higher than Tuesday’s average price.
Heating Oil Price Trend for August 19: -9¢
The Philadelphia Federal Reserve and its President Charles Plosser reported that its factory-sector index of general business activity plummeted to levels not seen since March of 2009. (image: uk.ibtimes.com and Nicholas Whitaker for HeatingOil.com)
Oil prices crumbled on Thursday on a fresh batch of sour U.S. economic data made traders once again fearful the world may be careening towards another recession. Heating oil prices dipped nine cents and crude lost a whopping $5.20 to finish at $82.83 a barrel on the NYMEX.
Oil contracts fell alongside global equities, the euro, and other currencies in another trading day of inconsistent ups and downs that have come to define this month’s market activity. The latest crummy economic report came from the Philadelphia Federal Reserve, which reported manufacturing and other heavy oil-using industries may slow operations in an attempt to protect themselves from the weakening economy.
Strategists believe the 2008 financial crisis, which saw oil prices drop to almost $30 a barrel, is still lingering in many traders’ minds. Such fears aren’t entirely unwarranted, but a drop to those levels again is extremely unlikely given today’s supply and demand balance.
Since talks earlier this week between French President Nicolas Sarkozy and German Chancellor Angela Merkel were largely unproductive, market participants remain hopeful top European leaders will come up with another approach to solving the continent’s sovereign debt crisis. The problem largely began in Greece in April last year when credit rating Standard & Poor’s issued the country a BB+, a junk status, and Greek leaders were forced to request a bailout package from the International Monetary Fund.
The average retail heating oil price in the Northeast is nine cents lower than Thursday’s average price.
Heating Oil Price Trend for August 17: -1¢
German Chancellor Angela Merkel and French President Nicolas Sarkozy announced their intention to form a “new economic government,” lead by European Union President Herman Van Rompuy, that will meet at least twice a year. Oil marketers remain unconvinced the measure will be enough to curb the continent’s spiraling debt problems. (image: g-8.de and Nicholas Whitaker for HeatingOil.com)
Despite unexpectedly strong industrial reports from the U.S., oil prices drooped on Tuesday as traders question how demand will be affected by wavering global economic growth. Heating oil prices lost one cent and crude dropped $1.23 to settle at $86.65 a barrel on the NYMEX.
Contracts spiked slightly yesterday as German Chancellor Angela Merkel and French President Nicolas Sarkozy met in Paris to discuss possible solutions to Europe’s sovereign debt crisis, such as issuing bonds backed jointly by eurozone countries. Many believe replacing 17 government bonds with a single “Eurobond” would allow flailing economies likes Greece, Portugal, and Ireland to borrow in cooperation with stronger economies like Germany and France. However, Merkel and Sarkozy said it’s not the right time to restructure bonds, and oil prices slipped back down today when the two leaders failed to come to any solid conclusions.
Over the past several weeks, traders have consistently taken more cues from global financial markets than the more fundamental indicators of oil pricing like supply and demand levels, though the two factors are linked. Thriving economies mean higher demand levels, and vice versa.
The U.S. delivered a mixed bag of economic news on Tuesday, with new home construction falling 1.5% in July. The price of imported goods rose slightly, and industrial output saw surprising gains. Analysts believed the industrial lift would raise the price of distillates like heating oil and diesel, but the market stayed put.
The average retail heating oil price in the Northeast is one cent lower than Tuesday’s average price.
Heating Oil Price Trend for August 16: +4¢
Oil market influences finally took a step away from U.S. economic flip-flops with the weak dollar overwhelming most other activity. By contrast, the euro gained strength as French President Nicolas Sarkozy and German Chancellor Angela Merkel met to discuss solutions to the eurozone’s sovereign debt problems. (image: truthalliance.net and Nicholas Whitaker for HeatingOil.com)
Oil prices rebounded to their highest level in nearly two weeks on Monday, spurned by a weak dollar and a flurry of stock market improvements. Heating oil prices climbed four cents as crude gained $2.50 to finish at $87.88 a barrel on the NYMEX.
Strong U.S. equities pushed oil upwards as the Dow Jones Industrial Average jumped more than 100 points. Economists believe if the momentum continues, oil prices could soon breach the $90 a barrel mark again. That’s well below the level it was a month ago, but still a sign of strength that should inspire trading. Investors await cues from the American Petroleum Institute inventory report due out on Tuesday. Stockpiles of distillates, primarily diesel and heating oil, are expected to build by 700,000 barrels.
Also, the dollar paled in performance against a panel of six other currencies, giving oil markets a strong midday upgrade. A weak dollar often boosts dollar-denominated commodities like oil.
Traders are slowly placing larger bets after last week’s traumatic credit downgrade, despite negative economic news from U.S. industrial sectors. The Empire State index showed a decline in business conditions and manufacturing activity around the New York region for the third month in a row. And, the National Association of Home Builders/Wells Fargo released their monthly home market index report for August, revealing a serious lack of growth.
Strategists are also keeping an eye on Tropical Storm Gert, the seventh storm of the season. Storm activity has picked up in the Atlantic basin, typical for this time of year, but so far most oil refineries have avoided shutdowns.
The average retail heating oil price in the Northeast is four cents higher than Monday’s average price.
Heating Oil Price Trend for August 8: +5¢
At a press conference on Friday, Italian prime minister Silvio Berlusconi announced new measures to eliminate Italy’s budget deficit by 2013, a year earlier than originally planned. (image: globalmontreal.com and Nicholas Whitaker for HeatingOil.com)
Attention finally shifted away from U.S. economic woes on Friday when oil prices rebounded slightly as European leaders laid out plans to improve the looming sovereign debt crisis. Heating oil gained five cents while crude climbed 25 cents to settle at $86.88 a barrel on the New York Mercantile Exchange.
In one of the most volatile trading days in recent history, oil contracts dipped as low as $82.87 – the lowest they’ve been since November – before recovering at the end of the day. Global economic trends go hand-in-hand with oil demand. Thus, last week’s flux of negative financial news from the U.S. crunched oil prices down to levels not seen since February, when Libya’s civil war disrupted the flow of production and skewed the markets.
Though many traders still fear prices could dip below the $80 a barrel mark, oil contracts rallied when Italian officials announced their new agreement with European Union authorities that will amend Italy’s laws to balance the country’s budget by 2013, a year ahead of schedule. The news quelled fears the eurozone’s most powerful economies are being infected by the debt crisis that began in Greece over a year ago.
Economists are still keeping their eye on weaker, more vulnerable eurozone members such as Ireland, Portugal, and Spain, which holds a 20% unemployment rate and houses five of the eight banks that failed July’s European banking stress test.
The average retail heating oil price in the Northeast is five cents higher than Friday’s average price.
Heating Oil Price Trend for July 19: -4¢
Miguel Fernandez Ordonez, governor of the Bank of Spain, said results of the European bank stress test were overly pessimistic and no Spanish lender needs to increase capital, even though five of the eight banks that failed the test are based in Spain. (image: pe.com and Nicholas Whitaker for HeatingOil.com)
News that Europe’s debt problem is worsening and possibly spreading fueled worries of a global economic crisis and pushed oil prices lower on Monday. Lagging economic trends often mean weak oil demand, leaving investors noticeably uninspired. Heating oil fell four cents while crude dropped $1.31 to settle at $95.93 a barrel on the NYMEX.
After days of heavy focus on U.S. economic indicators, strategists were alarmed by last week’s stress test of several major European banks. The goal of the test was to restore confidence in Europe’s financial sector by identifying its weakest banks and imploring them to raise capital. Eight of 90 banks failed the assessment, news that caused the euro to slump to its weakest level in nearly a week. Analysts voiced concern that economic growth for the entire continent could remain weak for some time, and many are fearful of a default by Greece. However, consistently strong demand from the expanding Chinese economy should balance the scales to some degree.
Analysts expect focus will shift back to U.S. economics later in the week, as lawmakers must decide whether or not to raise the $14.29 trillion debt ceiling by August 2nd. Though the decision isn’t directly linked to heating oil pricing, it could impact the strength of the dollar – an important factor since oil futures often mimic currency trends. If President Obama and Congressional leaders fail to establish an agreement, traders will likely shy away from riskier commodities in favor of more secure bets.
The average retail heating oil price in the Northeast is four cents lower than Monday’s average price.
Heating Oil Price Trend for July 12: -1¢
Apprehension about Europe's economy, spurred by Greece's financial fallout, pushed the euro below $1.40 for the first time since May 23. (image: putnam.k12.ga.us and Nicholas Whitaker for HeatingOil.com)
Oil prices slumped slightly on Monday as the dollar gained strength on European debt troubles and traders worried that China’s economic growth may not inspire as much oil demand as first expected. Heating oil slipped one cent while crude dropped $1.05 to $95.15 per barrel on the NYMEX.
For the first time since May, the euro – previously holding strong at $1.40152 – slipped below $1.40 against the dollar, making oil (a dollar dominated commodity) more expensive for traders holding other currencies.
In the latest development in Greece’s debt crisis, European leaders met to discuss ways of preventing the near-collapse from spreading to Italy and other countries. Finance ministers in single-currency zones commented that another bailout rescue package is a possibility, despite the threat of default.
In China, imports in June fell to 4.81 million barrels a day, the lowest levels seen in eight months. Also, Chinese leaders said the nation’s Consumer Price Index spiked 6.4% last month – the largest monthly jump in nearly three years. Analysts fear the price increase could signify further weakening Chinese demand. China is the world’s second biggest oil consumer; after, of course, the U.S. of A.
In more optimistic news, the U.S. Department of Energy reported that all 30 million barrels of U.S. oil tapped from its strategic reserves as part of the IEA’s attempt to drive prices down had been sold to 15 major companies. The IEA isn’t having trouble unloading the 60 million barrels total it will release, a sign that demand is gaining momentum.
Today’s average retail heating oil price in the Northeast is one cent lower than Monday’s average price.
Heating Oil Price Trend for July 7: +1¢
Economists and traders are worried about China's inflation rates, as global economic factors continue to heavily influence oil markets. The People's Bank of China has increased interest rates three times already this year. (image: llenrock.com and Nicholas Whitaker for HeatingOil.com)
Oil prices remained in a holding pattern on Wednesday as investors waited for the Department of Energy’s weekly inventory report and an update on U.S. employment rates due out on Friday. Heating oil inched up one cent and crude slipped 24¢ to settle at $96.65 a barrel on the NYMEX.
Oil markets took a hit early in the day when the People’s Bank of China announced it will raise benchmark interest rates by a quarter of a percentage point. It’s the third time rates have been raised this year. Though investors are concerned about China’s ability to control inflation during economic growth, ultimately optimism leveled the market around midday.
Many traders are holding their bets until the government releases its monthly employment report tomorrow, since a sluggish U.S. economy could mean decreased oil consumption. The report is expected to show an increase of 54,000 jobs in June. Uncertainty about the state of the global economy has been scrambling oil prices for some time because contradicting positive and negative indicators have made it difficult to predict fuel demand levels for the rest of the year.
Futures have held steady below $100 a barrel for almost a month, but analysts project the average for the year will probably be right on the $100 a barrel mark. Prices were already climbing when the market opened Thursday, indicating more consequential swings are likely on the way.
Today’s average retail heating oil price in the Northeast is one cent higher than Wednesday’s average price.
Troubles in Libya and Japan Could Make Heating Oil More Expensive than Gasoline This Off-Season
The 9.0 magnitude earthquake that hit Japan last week caused fires that severely damaged several oil refineries. Out-of-commission refineries are expected to lead to a major increase in imports of US diesel and heating oil to Japan for months. (image: timesfreepress.com)
Civil war in Libya and devastation caused by a powerful earthquake and resulting tsunamis in Japan could make for an unusual event this summer: the price of heating oil rising above the price of gasoline. Bloomberg reported on Tuesday that big boosts in demand for US diesel exports from Europe and disaster-hobbled Japan could drive market heating oil prices above gasoline prices during the US summer driving season.
Normally, summer in the US is when heating oil prices drop and gasoline prices rise as less heating oil is consumed and drivers on summer road trips consume more gasoline. That shift in demand leads to a shift in prices that commodity investors routinely take advantage of by selling heating oil contacts and buying gasoline products in March and April. According to Bloomberg, “Heating oil futures have averaged 7.7 cents less than gasoline from April through July in the past five years.”
But that trend could be turned on its head by events in Libya and Japan this spring. The IEA estimated on Monday that Libya’s civil war could cut out 1.3 million barrels of crude production “for many months.” Previously, the vast majority of Libyan crude was exported to Europe for refining into heating oil, diesel, and gasoline. With an important supply of crude cut off, European refiners will have trouble meeting demand for diesel fuel and markets will look for new supplies of diesel from the US. Because heating oil traded at the NYMEX is a proxy for diesel fuel, that added demand from Europe will push heating oil prices higher for as long as Libyan crude supplies are constricted. In Japan, a similar situation with a different origin will likely result in a much larger boost in demand for exported diesel from the US. Many Japanese refineries were knocked out by the earthquake, which has already resulted in a shortage of diesel and heating oil in much of the country, and a big increase in imports of American diesel and heating oil is expected to fill in the gap until the Japanese refining sector returns to full capacity.
In fact, the anticipation of the booming export market for US distillate fuels (a fuel category that includes diesel and heating oil) is already widening the spread between heating oil and gasoline prices at the NYMEX. “[Heating oil’s] premium over gasoline has increased almost sixfold to 15.1 cents a gallon from 2.53 cents since March 10, the day before the 9.0-magnitude temblor struck Japan,” Bloomberg reported.
For now, the market dynamic imposed by events in Libya and Japan is an unfortunate one for heating oil users. Heating oil prices will likely hold steady or even increase during late March and early April, a time when prices usually begin to fall due to the end of the heating season. This means late-season deliveries and tank top-offs will probably be more expensive than in previous years. But it could also mean falling heating oil prices at the beginning of next heating season, when supply issues in Libya and Japan may be resolved.
As of the end of trading at the NYMEX on March 18, the price of RBOB Gasoline was $2.95 a gallon and heating oil was at $3.03 a gallon.
The All-Star Roster of Oil Producing Countries!
German oil company Wintershall's production facility in Libya, the world's 17th-largest producer of crude oil. (image: AFP/Getty images)
This week, the Associated Press compiled a list of the top 20 oil-producing nations in the world based on 2009 statistics from the EIA.
The Huffington Post put together a nifty little slide show of the world’s biggest oil gushers, and it’s worth a quick click-through. Now is of course a great time to educate yourself on where most of the world’s oil comes from, as political turmoil in Libya (just the 17th-biggest oil pumper in the world) drove crude and heating oil to post historically large price increases this week.
It’s important to remember that the list covers the biggest producers of crude oil, not the biggest exporters—that’s why Saudi Arabia comes in at #2, despite the fact that most Americans would place it at the top of the list. The list holds some other surprises, but here are some highlights (spoiler alert!): number 20 is Azerbaijan…which is in fact a country. Our hockey-loving northern neighbor, Canada (which is also the top exporter of oil to the US), is #7. And our old frienemies the Russians top the list, producing 9.5 million barrels of crude per day.
So check out the slide show and get ready to drop some factoids on the next friend or acquaintance that complains about rising heating oil or gasoline prices without knowing where their fuel originally comes from.
Activists Strike Heating Oil Tanks at Davos Summit
Police investigated the explosion and heating oil sabotage at the Post Hotel Morosani in Davos, Switzerland on Thursday. (image: Fabrice Coffrini/Getty Images via globalpost.com)
As a meeting of the world’s wealthiest and most economically powerful people, the World Economic Forum’s (WEF) annual meeting at Davos-Klosters, Switzerland is an attractive target for anti-capitalist and anti-globalization activists. As is frequently seen at meetings of the World Trade Organization and International Monetary Fund, protests usually take the form of street demonstrations than sometimes turn violent, leaving behind shattered shop windows and burnt-out cars.
But sometimes activists employ novel tactics to disrupt the spinning of the world’s biggest economic wheels, the latest of which was seen at the Davos summit on Thursday. The BBC reported on Thursday morning that activists had sabotaged the heating oil used the heat the hotel where Swiss bankers are staying by adding sugar to the oil tanks. The sabotage shut down the hotel’s heating system, “so that [Swiss] federal officials and bankers get to feel the mountain chill too,” according to an anonymous message that claimed responsibility for the sabotage.
The unidentified group also alerted the press that it was behind a small explosion at the same hotel, the Post Hotel Morosani. The explosion was reportedly caused by fireworks and broke two windows, but did not cause any injuries.
There are two lessons here. First: if you’re going to an international meeting of the economically powerful, you may want to pack a space heater as a backup. Second: be sure to keep sugar OUT of your heating oil tank.
OPEC, IEA Sparring Over Crude Supplies Seesaws Oil Prices
Two major players in the world energy game square off over global oil supplies. (images: news.bbc.co.uk and iea.org)
Two heavyweights in the global energy sector got into a public disagreement this week that helped to drive oil prices higher. On Monday, the International Energy Agency (IEA) released a report calling current oil prices “alarming” and urging OPEC to lift its production levels to ease prices lower and avert economic damage, the Wall Street Journal reported on Wednesday. In response, OPEC’s secretary General Abdalla Salem Al-Badri dismissed concerns over short oil supplies and climbing prices, saying, “there is more than enough oil on the market.”
The disagreement boils down to whether or not enough oil exists on the world market to meet growing demand. According to figures in the IEA report, demand for oil in the developed nations of the Organization for Economic Cooperation and Development (OECD) grew significantly more than expected in 2010, and is expected to increase beyond earlier forecasts in 2011. The report estimated that OECD countries used 2.7 million more barrels per day of crude in 2010 than 2009, and that 2011 will see an increase of 1.4 million barrels per day (both estimates were several hundred thousand barrels per day higher than estimates released in December). The IEA attributed the increase in consumption to a stronger-than-expected recovery of OECD economies last year.
While the Organization of Petroleum Exporting Countries also made upward revisions to its global oil demand predictions on Monday, it differed sharply with the conclusions of the IEA. Comments from Secretary Al-Badri focused on healthy commercial stockpiles of crude in OECD nations and plenty of spare production capacity within OPEC. Al-Badri’s comments also went so far as to scold the IEA for its calls for increased production:
Any assumption that there is tightness in the market … is incorrect. Supplying the world’s media with unrealistic assumptions and forecasts will serve only to confuse matters and create unnecessary fear in the markets. The IEA must be consistent in their remarks.
According to the Journal, the IEA did not respond to Al-Badri’s criticism.
On Tuesday, the report from the IEA and OPEC’s clear intention to keep production levels steady helped drive oil prices slightly higher. But on Wednesday morning, the IEA itself said that Saudi Arabia, Al-Badri’s home country and the biggest crude producer in OPEC, has been quietly increasing its output as oil prices have continued to rise, according to a UPI report released on Wednesday.
The disagreement between OPEC and the IEA over oil supplies will probably continue, with predictions for growing demnd driving prices higher and unofficial production increases bringing them down again. However, if oil prices increase too far too fast, OPEC will most likely step in to bring them down though large and official production increases, as it has an interest in keeping the OECD nations, their best customers and advisees to the IEA, in good economic health.
Heating Oil Prices Rose by 16 Percent in 2010
The NYMEX price for heating oil rose by 35 cents over the course of 2010, with the biggest gains posted at end of the year. (image: ft.com)
Now that the frenzy of the end-of-2010 oil rally is sputtering out, it’s a good time to look back on all of last year and take stock of how heating oil prices changed over the last 12 months. On Friday, Bloomberg News reported that heating oil and gasoline prices both moved higher over the course of 2010, as they did in 2009 as well.
The price of heating oil at the New York Mercantile exchange began 2010 at $2.19 a gallon and ended the year on Friday at $2.54 a gallon. That’s an increase of 35 cents per gallon, or 16 percent, from January 4 to December 31.
Looking back on what drove heating oil prices in 2010, one word provides a pretty complete answer: macroeconomics. Economic trends in the global and US economies continually brought about peaks and valleys in the price of heating oil. Stimulus measures, national debt crises, monetary policies and currency values held considerable influence over heating oil prices last year, as one analyst told Bloomberg:
Heating oil and the energy complex are basically being led by the global economic picture, said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The perceptions of the global economy and European and U.S. recovery are going to continue to be the primary drivers next year.”
Indeed, if 2010 proved anything about heating oil prices, it was that they are determined less by simple supply and demand than a host of global economic factors. And as Gene McGillian pointed out, there is every reason to believe that that dynamic will carry over into this year, topping the list of the five top heating oil news stories to watch in 2011.
The Top Five Heating Oil Stories to Watch in 2011
The global economic recovery and its cause-and-effect relationship with the price of crude oil will have the biggest day-to-day impact on heating oil dealers and consumers in 2011. (image: ihmsisters.org)
2010 is history and 2011 is officially underway. Fitful economic recovery in the US and around the world, looming fights over financial and environmental regulation, and the continuing advancement of alternative fuel technologies are certain to make 2011 an interesting and eventful year for heating oil dealers and consumers across the country.
Below is a list of the top five news stories that will have the biggest effects on heating oil users and the heating oil industry this year. Stay with HeatingOil.com for ongoing coverage of each of these stories as January turns to December.
1. Economic recovery and the price of crude.
Nearly three years after it began, the global recession is still putting a drag on economies around the world. In the final months of 2010, macroeconomic factors related to the recession and recovery like the value of the US dollar, national debts in the European Union, and Chinese interest rates exerted huge influence over oil prices. In 2011, that trend will continue as oil producing and oil-consuming nations around the world keep striving to make their economies the best they can be. The price of crude oil (and, by extension, the price of heating oil) will continue to bounce up and down in response to shifting macroeconomic realities. When and if a global recovery is established, oil prices will begin to calm down and become less volatile.
2. New commodity trading regulations.
In 2008, the price of crude oil shot through the roof to reach an all-time high price of $147 a barrel. The effects of this rise were skyrocketing heating oil and gasoline prices and a worsening of the economic crisis in the US and abroad. The cause of the price spike was less clear, and many persuasively argued that at least one of the causes was out-of-control speculation on crude oil and other commodities. That argument led directly to movement within the Commodity Futures Trading Commission (CFTC) to investigate oil speculation and, if necessary, regulate it in such a way that would bring about less volatile and perhaps lower prices. By summer of 2010, the CFTC had paid the issue plenty of lip service, but had failed to take any concrete action. Then came the Dodd-Frank financial reform law—sweeping legislation aimed at remedying some of the financial ills that caused the recession—which gave the CFTC explicit power to monitor commodity speculation, set limits on speculative activity, and enforce those limits. By last month, the agency had shown some progress toward its goal and it appears likely that the new rules will take effect some time this year. When they do, they could be the price-soothing antidote to speculative price bubbles that so many heating oil users are aching for…or they could be an overly complex mishmash of rules that do nothing to moderate oil prices. Either way, pending commodity speculation regulations will continue to be big news.
3. The spread of biodiesel.
Biodiesel is a clean-burning renewable fuel that can be used as heating oil. Biodiesel-blended heating oil (also known by its trademarked brand name, Bioheat) continued to make its way to residential fuel tanks around the country in 2010, and is poised to continue its spread it 2011. Just last month, the biodiesel industry scored two huge victories: the rejection of the refining industry’s legal challenge to the national Renewable Fuels Standard and the reinstatement of the $1-per-gallon tax credit for biodiesel producers. With this support, the biodiesel industry is starting 2011 in a position of strength, which will probably mean increasing numbers of heating oil users gaining access to biodiesel heating oil, which could make 2011 the year that biodiesel heating oil really takes off.
4. Low-sulfur requirements.
2010 saw many states and a few municipalities moving to reduce the sulfur content of heating oil. Sulfur in any fuel produces sulfur dioxide, which can cause asthma and other respiratory problems, so it’s no wonder that citizens and governments want to cut as much sulfur out of heating and transportation fuels as possible. States like New York, Maine, and Connecticut have already ratified laws requiring gradually reduced sulfur levels in heating oil, and other states like Massachusetts and Pennsylvania are considering similar action. But several Northeastern states’ sulfur limits are contingent on neighboring states passing similar laws (a safeguard against supply shortages), so the regulations being debated now in certain statehouses will have far-reaching implications if and when they lead to legislative action. Like regulations on oil speculation, the effects of region-wide low-sulfur heating oil laws on wholesale and retail prices are unknown, but industry voices on both sides of the debate have a lot to say about them.
5. The battle over US greenhouse gas emissions regulation.
Though it does not have a direct effect on the heating oil industry, federal regulation of greenhouse gas emissions could make a splash that sends some major ripples through the lives of heating oil dealers and consumers. Of primary importance is how the regulations will be applied to the US oil refining industry, a leading supplier of heating oil to consumers foreign and domestic. While refining industry groups and Big-Oil-friendly politicians like Governor Rick Perry of Texas have vowed to fight greenhouse gas regulations from the EPA tooth and nail, it appears inevitable that they will be implemented in some form or other at some point this year. Potential effects on refining costs and supply chains could bring about changes in heating oil prices, or could have no effect on them at all. In any case, the way heating oil is made in the US is about to change.
So there you have it, your guide to the most important heating oil stories of 2011. Want to add to the list or make your own? Share in the comments section below.
Rising Oil Prices Pose Threat to Economic Recovery, and OPEC Isn’t Helping
There are signs that the global economy is on a rocky road to recovery, but steadily rising oil prices pose an increasing threat. (image: mauryk2.wordpress.com)
As the price of crude has risen steadily over the last three months, stretching toward the $100-per-barrel mark, concern among economists has grown that rising prices could hinder the fragile recovery of the global economy. While there is little cause for concern at the moment, the price of crude and the growth of the world’s damaged economies are locked in a race—and if oil prices prove to outpace economic growth, consumers of petroleum products and, by extension, national economies around the world, could suffer.
The Wall Street Journal’s Mark Whitehouse looked into the recent increase in oil prices and its interplay with the health of the global economy on Sunday, and found that the measured climb of oil prices this year poses less of a threat to world economies than did the historic price spike of 2008. Whitehouse reported on two key differences between today’s climbing crude price and the sharp oil price increase that exacerbated the global economic crisis of 2007-2008: today’s oil market is home to more speculative investing and has larger reserves of oil to fall back on.
As Whitehouse explains, the number of speculative interests trading regularly in oil has increased markedly in the last two years:
This time around, financial investors are playing a bigger role. In the market for oil futures and options, investors such as hedge funds and exchange-traded funds have been piling into contracts that rise in value with prices. As of Dec. 7, their bullish bets exceeded their bearish bets by about 223 million barrels, the highest level on record.
While increased speculation is often identified as the main cause of volatile and inflated oil pries over the last decade, it offers a benefit that helps prevent sudden price spikes and cushion the impact of gradually rising prices on economic recovery. “[T]he broader economy is now more insulated from oil shocks,” oil analyst and economist Philip Verleger told the Journal. According to Verleger, speculation drives up future oil prices, which offers a strong incentive for investors to buy oil now and hold it for sale at a higher price a few months in the future. All of that oil on hand makes for excess supplies that can be used to meet any sudden demand increases, thus avoiding shortages and resulting price spikes.
But according to a British think tank, world oil supplies are less than ample, and OPEC’s refusal to boost production could seriously damage the global economy in 2011. UPI reported on Tuesday that London’s Center for Global Energy Studies sounded the alarm in its monthly oil report, which found that current oil supplies are barely satisfying global demand, which is being led upwards by developing nations like China. Therefore, the report warns, “Unless OPEC’s sentiment changes, or the global economy slows dramatically once again, the world is set for higher oil prices next year.” Higher crude oil prices would drive up the prices of consumer fuels like heating oil and gasoline, leaving consumers less to spend on other goods and services that would keep national and global economic recoveries on track.
Interestingly, economic growth around the world would drive up oil demand, which would in turn drive up oil prices; put simply, economic recovery could be a leading cause of higher oil prices. However, if the pace of oil price increases driven by other factors (speculative investment and the value of the US dollar, for example) is faster than the pace of economic recovery and the expansion of consumers’ buying power, higher oil prices could cause economic decline and possibly lead the most fragile economies back into recession.
Whether the world’s economies or crude oil prices win the high-stakes race for growth will have a huge effect on the overall health of the global economy for years to come. For now, oil prices appear to be rising slowly enough so as not to interfere with economic recovery in the US and other major economic powers. But, as Whitehouse concludes in his coverage of the issue, “while there are plenty of reasons to believe oil prices shouldn’t be a problem, they’re getting close to becoming one.”
Bank of America Trims Forecasts for Oil Prices, Oil Demand
Falling oil prices forced Bank of America Merrill Lynch to lower its forecast for oil prices in 2010. (image: thebrandunion.com)
Falling oil prices in recent weeks offer not only temporary relief from high oil prices, but could help keep fuel costs down for the rest of the year. In the aftermath of Europe’s debt crisis, which has brought the price of crude oil down below $68 a barrel from a high point above $87 in early May, Bank of America Merrill Lynch now predicts that oil demand and oil prices will be lower than previously expected in 2010.
Bank of America, like many other forecasters, expected strong economic growth to generate increased oil demand, which would push oil prices higher throughout the year. However, the debt crisis in Greece and Spain, which will curb growth and oil demand in the European economy economy, has led oil prices sharply down in May and prompted the bank to change its mind. Now, as Reuters reports, Bank of America forecasts the price of crude oil to average $78 a barrel in the second half of 2010, down from the $92 a barrel it had previously anticipated.
Weaker than expected oil demand will hold prices under $80 a barrel, says Bank of America, which reduced their forecast for growth in oil demand by 25 percent. Instead of growing by 2 million barrels per day (bpd) in 2010, Bank of America now expects demand to grow by 1.5 million bpd.
For heating oil users, the prospect of crude oil at $78 a barrel for next heating season sounds much more appealing than crude oil at $92 a barrel. However, that’s still an increase from the current crude oil price, and even if Bank of America is right the price of oil at the end of the year could be higher than the average price of $78 a barrel. The timing of economic recovery (and the higher oil prices it would bring) might not do heating oil consumers any favors, as they could see the market price for crude oil and heating oil rising just as they begin using heating oil in earnest.
Yet the fact of Bank of America’s substantial revision could indicate that oil traders are reassessing the future of the oil market in 2010. Oil prices climbed earlier in the year as traders predicted economic growth that always seemed to be just around the corner. If oil prices remain moderate until the global economy shows actual improvement, that could be good news for heating oil users as winter approaches, and Bank of America may be pushed to make further revisions to its price forecast.
IEA Cuts Forecast for 2010 Global Oil Demand
The IEA reduced its forecast for 2010 oil demand due to tepid demand in many countries in Asia and the Middle East. (image: internationalenergyworkshop.org)
One day after OPEC and the Energy Information Agency (EIA) raised their forecasts for oil demand in 2010, the International Energy Agency (IEA) bucked the trend and cut its prediction for oil demand this year. The IEA’s revision lowered their demand forecast by 220,000 barrels per day (bpd) compared to their April forecast, reported the Wall Street Journal.
Sluggish demand in emerging markets in Asia and the Middle East, which many analysts expect to drive growth in oil demand for years to come, led the IEA to revise its forecast. The agency singled out Iran and Malaysia as showing lower demand than previously expected, though the IEA does not expect any slowdown in China’s oil demand. Uncertainty in the global economy added to the IEA’s cautious revision. Europe is working to bail Greece out of its debt crisis and prevent instability from spreading to the similarly debt-ridden nations of Spain and Portugal, but if Europe’s economy struggles that could disrupt fuel demand not only on the continent and reduce global oil demand.
While demand concerns guided the IEA’s forecast, the agency also noted that oil supply remained plentiful. The IEA raised its estimate of non-OPEC crude oil production in 2010 by 200,000 bpd to 52.3 million bpd.
Even after cutting its demand forecast, the IEA remains more optimistic about oil demand than OPEC. OPEC, after hiking their forecast for oil demand on Tuesday, expects demand to be 950,000 bpd higher than demand in 2009. The IEA, though it trimmed its prediction, thinks demand will exceed 2009 levels by 1.6 million bpd.
Because the IEA still expects significant year-on-year growth in oil demand, though slightly less growth than foreseen in April, the agency’s revision has had a muted impact on oil prices. Fuel demand is still expected to recover this year as the economy recovers and that has kept oil prices on an upward trajectory, even as that demand has been more than adequately covered by existing supplies.
IEA: Record-High Oil Demand in 2010
The IEA says that economic recovery will lead the world to use more oil in 2010 than ever before. (image: juneauempire.com)
The International Energy Agency (IEA) announced on Tuesday that it had revised its estimates for oil consumption in 2010, and now expects this year to have the highest global demand for oil ever, reported Reuters. The new estimate is 100,000 barrels per day (bpd) higher than before, with oil demand expected to average 86.6 million bpd.
“The return of economic growth and hence oil demand growth is fuelling the increase,” the IEA said in the April edition of its monthly Oil Market Report. In February the IEA forecast that oil demand in 2010 would match the previous record of 86.5 million bpd, set in 2007 before the recession. As recovery continues, the IEA predicts that oil demand from 2009 to 2010 will grow by 1.67 million bpd.
Oil demand is rising not just in the developing nations of Asia and the Middle East, the IEA said, but also in North America. Demand in Europe remains weak. Non-OPEC supplies will meet this demand, especially growing production in Canada, the UK, and Russia. The IEA raised its forecast for non-OPEC production by 220,000 bpd to reach an average of 52 million bpd.
Growing supply from outside of OPEC, combined with eroding compliance with production quotas within OPEC, could keep prices stable as demand increases. In fact, the price of crude oil continued to decline on Tuesday after the IEA’s announcement. Nevertheless, the IEA echoed the concerns of other analysts and warned that rising oil prices could prevent economic growth, which in the end would harm producers as well as consumers:
Ultimately, things might turn messy for producers if $80-$100 per barrel is merely seen as the new $60-$80, stunting economic recovery while prompting resurgent non-oil and non-OPEC supply investment.
According to the IEA, the interests of consumers and producers are aligned in favor of lower oil prices.
