The latest predictions for oil prices from the EIA shows gradual and relatively modest increases in crude oil (pictured) and heating oil for over the next six months and beyond. (image: eia.doe.gov)

The Department of Energy (DOE) shaved $1.76 off its projection of 2010’s per-barrel price for crude in its latest Short-Term Energy Outlook, released on Wednesday. The September forecast of $77.37 is 2.2 percent lower than August’s forecast of $79.13 a barrel. The report also lowered its forecast for the average 2011 price, but at $82, it still represents a notable increase over the projected average price for 2010.

The explanation for the reduction in predicted prices given by the DOE’s Energy Information Administration (EIA) is simple: slow economic growth. “We reduced our crude-oil price expectations mainly because our forecast of U.S. gross domestic product has been cut,” EIA official Tancred Lidderdale told Bloomberg.com.

As for heating oil prices, The EIA predicts this quarter’s (Q3 of 2010, July through September) average retail price will be $2.76 per gallon and that next quarter’s average price will climb to $2.93 in the fourth quarter and $3.05 in the first quarter of 2011, making for an average of $2.99 this heating season. Those predictions are generally in line with recent evidence and another EIA forecast made earlier this year that heating oil prices would climb during the 2010-2011 heating season, but would do so gradually. An average increase of 12 cents from October to March my not be ideal, but should be manageable for most heating oil users, especially if sudden ten-cent-per-gallon price spikes are avoided.

The EIA has joined the consensus that heating oil prices will increase as demand picks up during the fall and winter, but that heating oil users will see fewer surprise price spikes than in previous years.

Ultra-low sulfur diesel will be the required heating oil by 2012 in several Northeastern states. (image: dep.state.pa.us)

The Energy Information Administration’s This Week in Petroleum newsletter, released on Wednesday, provides a nice summary of the transition to cleaner heating oil in Northeastern states.

In addition to the current status of low-sulfur and biodiesel content mandates in the 12 states that make up the Northeast, plus New York City and Washington, D.C. (table reproduced below), the newsletter provides heating oil consumption statistics and touches on challenges the industry faces in transitioning to a cleaner fuel. According to a 2008 report, New York is the biggest heating oil consumer, accounting for 23 percent of the US total, followed by Massachusetts, Pennsylvania (both 13 percent) and Connecticut (11 percent). The report states that the US consumes 4,648,017 gallons of heating oil per year.

The newsletter acknowledges that the goals of the states are to reduce air pollution and cut down heating system maintenance and repair costs, but notes some supply obstacles and possible price increases that could result from pending mandates. Low-sulfur mandates may at first result in reduced fuel imports, the report states, because production of low-sulfur distillates is limited in other parts of the world. As a result, bouts of cold weather could bring price spikes, as imported heating oil is often used to meet sharp increases in demand. The report also notes that required changes to refinery infrastructure and the higher cost of storing and shipping low-sulfur fuel could result in higher wholesale and retail heating oil prices.  However, it should be noted that theses conclusions are based on data published in May of 2001, and may not be completely accurate, as significant changes may have occurred in the refining and heating oil industries over the last decade.  The National Oilheat Research Alliance (NORA), an organization funded by the heating oil industry, released its own report on the transition to low-sulfur heating oil in May of this year that contradicts some of the EIA’s conclusions.  Most notably, the NORA report found that “For consumers, the higher cost of ULSD [ultra low-sulfur diesel] relative to heating oil will be more than offset by lower maintenance costs and higher fuel efficiency.”

Clearly, the move to low-sulfur heating oil has the potential to affect heating oil supply dynamics and heating oil prices. The question is, will possible short-term price increases be offset by lower maitenance and repair costs as NORA claims?  If so, how long will it take for the average consumer to recoup increased costs?  These questions will continue to be debated by various elements in the petroleum industry, and the answers will only become clear once the first low-sulfur requirements take effect.  For a more in-depth look at the pros and cons of low-sulfur and biodiesel mandates for heating oil users, take a look at this HeatingOil.com post from March of this year that compares arguments for and against mandates in Connecticut.

(image: "Current Northeast State Regulatory Activities to Reduce Sulfur in Heating Oil" from eia.gov)

]]> http://www.heatingoil.com/blog/eia-gives-overview-of-northeastern-states%e2%80%99-plans-for-low-sulfur-heating-oil819/feed/ http://www.heatingoil.com/blog/heating-oil-price-trend-for-august-19-no-change819/ http://www.heatingoil.com/blog/heating-oil-price-trend-for-august-19-no-change819/#comments Thu, 19 Aug 2010 14:38:08 +0000 Josh Garrett http://www.heatingoil.com/?p=18261

Mixed inventory numbers from the EIA kept oil prices flat at the NYMEX on Wednesday. (image: sais-jhu.edu)

A mixed inventory report from the Department of Energy’s Energy Information Administration (EIA) released on Wednesday morning brought little change to crude and heating oil prices at the NYMEX yesterday. The report showed modest decreases in crude and gasoline stockpiles and a sizable increase in distillate inventories, which include heating oil. The market prices of crude and heating oil both ended the day slightly below their opening positions, and the result was flat retail heating oil prices for Thursday. Oil prices rose in early trading on Thursday morning, boosted by expectations of strong demand from China. By 10 am Eastern Time, however, both crude and heating oil prices had turned slightly below their opening prices.

Today’s average retail heating oil price in the Northeast is unchanged from Wednesday’s price.

Supplies of distillates in the US have reached their highest level in 27 years. (image: hourlyjuice.com)

Since the beginning of last heating season, huge supplies and low demand have been the norm on the heating oil market. These fundamental forces should have brought extremely low heating oil prices on the New York Mercantile Exchange for the last year or so, even during the winter. But other factors like the strength of the US dollar and ups and down on American stock markets brought on the same unpredictable swings in heating oil prices that might be expected under a different supply and demand picture.

This week, however, supply and demand have come roaring back to the heating oil markets. According to Bloomberg News, Wednesday’s Energy Information Administration petroleum inventory report tallied distillate inventories, a category that includes heating oil and diesel fuel, at 173.1 million barrels, 3.46 million barrels higher than the previous week’s total and the highest supply level since January of 1983.

The biggest supplies of heating oil in 27 years, combined with stock market losses and high unemployment that point to continuing low demand have driven the price of heating oil down by 15 cents a gallon in the last three days, and falling. As one analyst put it, the market is (at least for now) coming to its senses:

“The weekly jobless numbers were disastrous and sent the market lower,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The oil market is facing the reality, which is that supplies exceed demand. The only thing that was supporting prices was a false sense of economic security.”

Tumbling oil prices are always good news for heating oil users, and big supplies and small demand will likely stick around until at least this fall, when cold weather begins to drive demand and prices up. But as any oil price-watcher has learned, sanity in the market rarely lasts long, which means heating oil is just one big stock market day or Middle Eastern diplomatic crisis away from a 15-cent-per-gallon increase. For now, let’s all sit back and bask in the market’s soothing rationality and the cozy lower prices that it brings.

A bearish inventory report from the EIA pushed down oil prices on NYMEX. (image: ft.com)

The US Energy Information Administration’s (EIA) inventory reports released this morning showed substantial increases in stockpiles of gasoline and distillate fuels (which include heating oil), and the news caused oil prices to plunge. The price of crude fell $2.23 per barrel, causing it to close well below the $80 level and marking the steepest two-day decline in five weeks. Although the inventory report showed that crude oil supplies fell by 3 million barrels, the news of a 400,000-barrel increase in gasoline supplies and whopping 3.5-million-barrel increase in distillate supplies overshadowed the crude figures and underscored extremely weak demand for petroleum products. News that Chinese investment in manufacturing fell and a warning from the International Energy Agency that weak economies could cancel out any oil demand increases this year also contributed to falling prices. Major decreases in crude and heating oil prices on the NYMEX will likely bring another substantial decline in retail heating oil prices on Thursday.

Today’s Closing Prices on the NYMEX

Crude oil (September 2010 contract): Down 2.8 percent, $78.02 a barrel
Heating oil (September 2010 contract): Down 2.4 percent

After price-lock contracts burned heating oil dealers and consumers in 2008, many dealers stopped offering them altogether. (image: constructionlawtoday.com)

Local television station WCVB in Boston is the latest outlet to report on the question that pops up every late summer in the minds of heating oil users: to lock in or not to lock in?

The WCVB news team interviewed local heating oil dealer Scott McFarlane of McFarlane Energy, who is not offering price-lock contracts this year. When asked to explain his decision to eliminate the contracts, McFarlane not surprisingly referred back to the fateful summer of 2008, when crude and heating oil prices spiked to all-time highs, only to plummet in the fall:

Two years ago, many dealers bought oil and customers wanted to lock in. The price dropped drastically and they were all asking dealers to come down. Several went out of business. I took a big hit. The dealer has to go out and buy that oil. If you sign a contract or have a verbal agreement and the price goes down, you can’t expect him to go down in price.

That worst-case scenario for consumers and dealers has since led many heating oil suppliers to eliminate price-lock contracts altogether—a trend that arose in Connecticut last month.

In addition to the trying times of 2008, McFarlane also cited a “consensus” that heating oil prices will be moderate and remain relatively steady this heating season. The consensus is supported by two major factors: supplies of distillates (fuels that include heating oil and road diesel) are at levels well above the five-year average and the US economy is still hindered by sluggish growth that could lead to a double-dip recession, which is keeping a lid on oil demand. It also matches a forecast for moderate and gradual increases in heating oil prices this season made by the Department of Energy’s Energy Information Administration two weeks ago.

Heating oil users who are big fans of price-lock contracts (despite what may have happened to them in 2008) should still be able to find them by contacting different dealers—many dealers still offer the contracts, but only to customers who specifically request them.

The consensus belief that this winter will bring moderate prices and few surprises to heating oil users is reason for some cautious optimism. But, as is always the case with heating oil prices, no one can say for sure what will happen when the cold weather comes around. The best thing for consumers to do to save money during the heating season is to focus on conservation. Getting heating systems cleaned and tuned-up, sealing air leaks, and adding insulation will ensure more efficient heating and using fewer gallons, no matter what the price may be.

For a video of WCVB’s report on price-lock heating oil contracts, visit thebostonchannel.com.