Rebels attacked government meetings in the southern Nigerian city of Warri. (image: cnn.com)

Last September, an amnesty program initiated by the government of Nigeria had convinced thousands of militants to lay down their arms and succeeded in bringing some calm to the crucial oil-producing region of the Niger Delta. In October, the fragile peace in the Niger Delta had helped increase Nigeria’s oil production and exports. By December, the peace in the Niger Delta had begun to unravel. President Umaru Yar’Adua had left the country for medical treatment, and the amnesty program stalled.

On Monday, talks aimed at re-starting the amnesty process were interrupted by two car bombs, Reuters reported. The car bombs exploded near a government building in the southern Nigerian city of Warri and injured some six passersby, but no serious injuries or deaths were reported. The main rebel group operating in the Niger Delta, MEND, claimed responsibility for the attacks. The group said the bombings were in response to comments from a provincial politician that labeled MEND “a media creation.” The group also expressed frustration at the exclusion of community representatives from the amnesty process under President Yar’Adua’s acting replacement, Goodluck Jonathan. The MEND statement made clear its intention to step up attacks on oil infrastructure in the Niger Delta and included a specific threat against installations operated by French corporation Total, which has not previously been targeted.

The car bombings are the latest in a string of sporadic but escalating attacks that have taken place since January. Last month, the attacks resulted in a near 5 percent decrease in Nigeria’s oil production.

With the government straining to push forward an amnesty program that it hopes will bring lasting peace to the Niger Delta and a measure of stability to the nation’s oil industry, Nigeria is not in great political shape. Ethnic clashes in central Nigeria add to the government’s problems and paint a picture of instability that could very well further slow down oil production in the near future.

As unrest simmers in Nigeria, the world’s seventh-largest supplier of crude oil and member of OPEC, oil traders around the world will keep a watchful eye on the nation’s political situation. If political conflict comes to a boil and makes deeper cuts into the nation’s oil output, the resulting reduction in world supplies could bring major oil price spikes that would filter down to heating oil and gasoline prices in a matter of days.

Despite weak fundamental forces tied to the global recession, crude oil prices have risen by 79 percent in the last year. The obvious culprit is excessive speculation. (image: ft.com)

In recent months, the task of uncovering and reporting the causality behind rising or falling oil prices has become increasingly difficult. Throughout the world, right now, demand for oil is low and supplies of oil are high. Together, these fundamental forces should be driving down the prices of crude oil and petroleum products and keeping them low. Despite those fundamental factors, oil prices have stayed on a steady upward path for the last year, with crude climbing from about $50 a barrel to $80.

What do you say when all logical analysis points to falling oil prices, but reality moves in the other direction? The heavy hitters in the oil price reporting sector, business news outlets like CNBC and the Wall Street Journal, usually respond to inexplicable movements on the oil markets with vague guesses at what traders are thinking as they “look to China” or “anticipate” this or that government report. Making such guesses does make a certain amount of sense—as I reported last week, the whims and perceptions of oil traders can have a major impact on oil prices.

But what’s really going on with oil prices? There’s much more crude and petroleum product in the world than we need, and yet prices for crude, heating oil, and gasoline continue to climb. As our own Steven Zweig persuasively argued in January: it’s the speculators. And he’s not alone—many big names in the oil industry and commodities markets have identified increasing speculative activity on the part of large institutional investors (investment banks and hedge funds, for example) as the main cause for rising prices over the last six to twelve months.

Two articles published last week echo Zweig’s assessment of speculation as the main culprit behind rising oil prices.

Writing for the Fort Worth Star-Telegram, business journalist Ed Wallace laid out a clear case for the excessive influence of speculation on oil prices. He referenced various statistics that show demand for oil in the US and around the world is still in a deep rut and others that show world supplies at incredibly high levels. But Wallace’s article included a fascinating and somewhat disturbing point: the link between US financial policy aimed at improving the economy and rising oil prices:

[Investment banks] were taking those near-zero-interest loans [from the federal government] and, instead of using the money to restart lending (and thus, it’s hoped, the economy), they were pumping much of it into equities and commodities. There they were profiting from the ever-rising paper prices caused by the huge influx of cheaply borrowed money.

In short, the size of those investments had the effect of artificially driving up the prices of commodities like crude and heating oil. As prices went up, so did investors’ profits, encouraging them to invest more…and the cycle continues.

Money intended to help pull the US economy out of a recession was used by speculators to enhance their already-considerable wealth, and had the side effect of driving up the prices of heating oil, gasoline, and other necessities for average Americans. Though not illegal, it’s certainly unfair and downright infuriating. Wallace concludes his article with a call for government regulations to stop the speculative cycle that’s driving up oil prices, but makes clear his belief that Congress does not possess the will to implement such regulations.

For his part, Huffington Post blogger and oil commenter Raymond J. Learsy made the ineffectual Commodity Futures Trading Commission (the agency charged with regulating commodities markets in the US) the focus of an article that covers much of the same territory as Wallace’s. As we have done repeatedly at HeatingOil.com, Learsy notes that since the CFTC, led by chairman Gary Gensler, first announced its belief that speculation was the main cause of the 2008 oil price spike, it has produced lots of talk and no action. Though the agency has taken some unexpected steps toward enforcing trading rules, sweeping action and stiff curbs on speculation are nowhere to be found. Even as the evidence showing speculation as the main force driving up oil prices continues to pile up, Learsy notes, the CFTC does nothing:

The outrageous dysfunction of the commodity markets and the tepid CFTC oversight continued blithely along. Late in the week of November 9th, 2009 the Energy Information Service announced that oil stocks had surged by 1.762 million barrels, much more than expected, and that the U.S. refineries processing rate sank to 79.7%, the lowest in more than two decades. Against all reason, instead of collapsing prices, the price of oil jumped by $2.50 on the very day of the announcement.

The title of Learsy’s blog post, “Gary Gensler of the CFTC: Reformer or Wolf in Moth Eaten Sheep’s Clothing?” intimates that the lack of reform from the CFTC is a result of Gensler (a former investment banker himself) dragging his feet.

Whether or not that is true, one fact remains: excessive speculation is still driving up the price of goods that Americans need to survive. Speculation is what an investor (be it one person or a huge investment bank) does in pursuit of profits, so it’s obvious that speculators will not police themselves. The only answer is strict, comprehensive limits on speculative activity in commodities markets that are diligently enforced with serious consequences ($10,000,000 fines instead of $10,000, for example) for violators.

Lax regulation and inattention to the goings-on in financial markets already ruined the global economy. Let’s force our government to make sure it doesn’t devastate our heating oil and gasoline budgets as well.

The use of carbon dioxide in enhanced oil recovery, as illustrated above, could expand as a consequence of climate legislation. (image: llnl.gov)

The oil industry has opposed legislative efforts to impose a cap on carbon emissions, but a new study says that such a cap could actually lead to increased oil production in the US and reduce imports of crude oil by 40 percent, reports the Houston Chronicle’s NewsWatch: Energy blog.

Captured carbon dioxide is at the heart of the study’s paradoxical finding. According to Advanced Resources International (ARI), which conducted the study for the environmental group the Natural Resources Defense Council, an emissions cap would accelerate development of carbon capture and storage (CCS) technology. Oil companies are already using captured carbon dioxide to improve the recovery of oil; by pumping carbon dioxide into oil wells, oil that couldn’t be recovered through conventional drilling is pushed up where it can reach a well, a process known as carbon dioxide enhanced oil recovery. If CCS became commonplace and could be paired with oil drilling, carbon dioxide enhanced oil recovery could expand immensely, increasing total domestic production by 3 to 3.6 million barrels per day in 2030. This form of enhanced oil recovery could bring a total 85 billion barrels of previously unrecoverable oil into production.

Carbon dioxide enhanced oil recovery is already underway in 105 separate projects, including Denbury Resources’ Conroe Field. Denbury uses naturally occurring carbon dioxide at Conroe Field, piped in from Mississippi. Denbury’s president, Tracy Evans, says that “a limitation of the source of CO2” has prevented more enhanced oil recovery from taking place. This limitation highlights a pivotal assumption upon which this study is based: carbon capture and storage technology will become highly developed and widespread if climate legislation places a cap on carbon emissions.

Taking as its baseline the American Clean Energy and Security Act (ACES), the House cap and trade bill also known as Waxman-Markey, the ARI concludes that 78 to 85 million metric tons of CO2 could be captured annually by 2020, and 410 to 530 million metric tons annually by 2030. While an emissions cap would certainly create an incentive to develop the technology to capture carbon emissions, it’s not certain that it would be developed—or could be implemented on that scale—regardless of what legislation is passed.

For the purposes of its study (full text available at Scribd.com), the ARI also assumed that “all of the captured CO2 is preferentially used for EOR [enhanced oil recovery]” (emphasis in original). If italicizing that assumption wasn’t enough, the ARI follows it up with a doozy of a footnote: “This is not necessarily what is expected to take place as a result of the ACES.”

So the ARI study appears to outline a best-case scenario for the oil industry and not the most probable outcome. Perhaps it’s the Natural Resources Defense Council’s effort to win oil support for climate legislation. Nevertheless, the study underscores a recent innovation in oil drilling—which, if it became the end stage of CCS, could mean carbon-neutral oil drilling—and the unintended benefits that the oil industry could gain from a cap on emissions.

Secretary of Energy Steven Chu speaking about the future of oil and gas at CERAWeek 2010. (image: chron.com)

Tuesday was “oil day” at the CERAWeek 2010 energy conference, sponsored by the energy research firm IHS CERA, and leading figures from the energy industry and from the Obama administration gathered to speak about the future of oil and gas. The dominant tone was one of confidence, as most speakers insisted that fossil fuels would remain the key energy sources far into the future, reported the Houston Chronicle.

While a positive assessment of the future of oil and gas might be expected from energy insiders, some of the oil and gas industry’s central claims about the continuing potential and relevance of fossil fuels were confirmed by Secretary of Energy Steven Chu. He talked about the promise of natural gas, which can be used for power generation and burns cleaner than coal, as a “bridge” fuel that can play a role in the “transition to other fuels” in the future. Oil, too, will retain its place in the energy mix, according to Chu: “Oil is an ideal transportation fuel, so it will be with us for decades.”

Chu’s guarded endorsement of oil and gas relieved some conference attendees in the oil and gas industry, who were worried that US energy policy might find no room for the continued use of fossil fuels, but other speakers took a more skeptical note on the possibility of an energy transition that would replace fossil fuels with alternative energy sources, whether in a few decades or longer. Saudi Aramco’s chief executive, Khalid Al-Falih, warned of the tendency for renewable energy technology to “overpromise but then underdeliver,” reported the Wall Street Journal. A cycle of overenthusiastic investment could spawn “green bubbles,” he said, though Aramco is planning to invest in solar power technology.

James Mulva, CEO of ConocoPhillips, may have gotten the most applause when he criticized Chu’s characterization of natural gas as a “bridge” fuel. Contrary to claims of what he called “hydrocarbon deniers” who think alternative energy can support the world’s energy needs, he stated: “natural gas is more than a bridge fuel. It is part of the long-term energy solution.”

Disagreement persists on the exact role that oil and gas may play in supplying energy demand in the future, but some consensus emerged on “oil day.” Mulva echoed Chu’s sentiment that “oil. . . will be with us for decades” during an interview after his presentation, when he said, “we know that oil and gas and coal, there’s not going to be an alternative to them for decades to come.” Just as the oil and gas industry doesn’t deny that renewable energy has its place, nor does Chu, the leading figure in US energy policy, deny that oil and gas will continue to be necessary. The question is how much renewable energy can and should be used, and how quickly it can begin to replace some (but not all) consumption of fossil fuels.

Germanico Pinto, Ecuador’s minister of natural non-renewable resources and current president of OPEC, has called for reduced oil speculation in pursuit of less volatile prices. (image: laht.com)

Bloomberg reported on Wednesday that another high-profile international figure has pledged to fight excessive oil speculation, which many believe contributes to volatile prices. OPEC President Germanico Pinto of Ecuador laid out what he sees as the negative impact of volatile prices on OPEC and the oil industry: “volatility produces difficulties in the markets and in defining a long-term strategy for public investment in the oil industry.”

When making long-term plans for oil exploration projects, oil companies rely on a projected crude price to predict future revenues and budget projects accordingly. Unpredictable prices can place such projects in a state of limbo, adding to uncertainty about future supply levels. Furthermore, as Pinto noted, the inability to predict the profitability of oil companies makes them less attractive to public investors.

Pinto’s statement represents a cause in which the interests of oil companies and consumers are aligned. Just as huge oil companies need steady prices to plan their budgets, so too do American consumers of heating oil and gasoline. But while the OPEC president’s dedication to reducing oil speculation and price volatility may draw additional attention to that goal, he wields little if any power to push toward it. His public statement gives additional industry support to the CFTC’s push to curb speculation on US commodities markets, but his position as the head of an international business organization affords him no official influence over national or international policy.

So the battle for tighter controls over commodities speculation in pursuit of steadier oil prices has a new and vocal ally. Whether heating oil users and gasoline buyers in the US will see any benefit in the near future is still unclear, but they can take some comfort in knowing that, at the very least, when OPEC talks, the world listens.

When oil traders got two similarly named African countries mixed up last month, heating oil and gasoline consumers paid the price. (images: pickatrail.com)

Here at HeatingOil.com, we often report on the maddeningly confusing logic (or lack thereof) behind the movements of oil prices.

Perhaps the most important lesson to be learned from such reports is that in the oil markets, perception is everything. Just last week, a marginally positive US employment report caused a spike in crude oil prices that drove up gasoline and heating oil prices. If the business media is to be believed, oil traders perceived the jobs data as a sign that the US economy is on its way to recovery, which means US demand for oil will pick up sometime soon, which means prices will pick up also, which makes traders want to buy up oil futures contracts to cash in on the coming price increases. As more traders bought up contracts, the demand for contracts increased, sending crude oil prices upward on the New York Mercantile Exchange on Friday. As a direct result of the buying trend on Friday, heating oil and gasoline consumers are paying a few cents more per gallon today.

So here we have a clear-cut example of how oil traders’ perceptions can have direct bearing on the retail prices of heating oil and other refined petroleum products. It seems a little arbitrary, but after all these traders are the experts, right? If they think the jobs report is reason to expect an uptick in oil demand, they’re probably right. Even if the jobs report was not good news, it was not as bad as it could have been. As TheStreet.com reported on Friday, “Though the report was modest in reflecting a flat month for hiring, the subtle loss is buoying positive sentiment among investors.” On Friday, traders simply did their job: their perception, as experts, led them to buy more oil contracts and drive up the price.

But what happens when traders’ perceptions are just plain wrong?

For an example, we need only to look back to last month. In a turn of events grossly underreported by the business media but deftly brought to light on Saturday by the Record Searchlight of Redding, California, traders made a boneheaded error that ended up costing consumers extra pennies per gallon.

On February 18, the West African nation of Niger experienced a military coup that deposed the nation’s president, Mamadou Tandja. On February 19, the retail price of heating oil increased by an average of 4 cents per gallon as a result of the previous day’s rise in crude prices. Although we didn’t know it at the time, it appears that the coup in Niger had a lot to do with those rising prices. The day after the coup, Reuters reported that oil traders mistaking Niger for its oil-rich neighbor Nigeria had sparked a buying frenzy that helped send the price of crude to its February high of $79.29 a barrel.

Political turmoil in oil-rich nations and regions can have a major effect on oil prices, and with good reason: if a major oil exporter is gripped by a crisis that interferes with its oil industry, world oil supplies drop and prices go up. Nigeria is the eighth-largest exporter of crude in the world, supplying about 3 million barrels per day, so a coup or other major upheaval in that nation would certainly drive up prices. Niger, on the other hand, does not produce oil—the CIA World Factbook lists the nation’s 2007 oil experts as 0 barrels per day (157th in the world), so political events in Niger should have no bearing on oil prices whatsoever. Even the business news source MarketWatch (operated by the illustrious Wall Street Journal), seems to have hastily reported the coup had taken place in Nigeria, as this correction indicates. With that report, MarketWatch managed to take a false rumor off the trading floor and into world commodities and financial markets.

And so it seems that oil traders’ misperception of Niger as Nigeria gave oil prices a significant boost. To be fair, Nigeria has more than its share of political problems, as rebel groups sporadically attack oil infrastructure in protest of what they see as unfair distribution of oil wealth on the part of the national government. A coup in Nigeria would make sense, which made the false belief that one had taken place there that much more believable. And of course the names of the two nations are quite similar, not to mention the fact the bulk of Nigeria’s oil comes from the Niger Delta region of the country. So perhaps the misunderstanding stemmed from an honest mistake. But honest or not, the point is that one piece of misinformation led to a trend that had billions of dollars worth of ramifications throughout the world economy, not least of which was American consumers paying more for their heating oil and gasoline.

Faced with their stupid and costly error, errant oil traders would likely claim that it was actually other factors that drove up oil prices on February 18, as Reuters explained:

oil prices continued rising afterwards to within cents of $80 a barrel on Thursday, spurred by other factors such as tension over Iran’s nuclear programme and a weaker dollar.

While that may be true, would prices have increased that much on that day without the Niger/Nigeria factor? It is literally impossible to determine with any certainty, but reasonable analysis would say no. Perhaps if traders had double-checked their information before reacting, heating oil would have risen by just two cents instead of four on the following day. Those two extra cents, multiplied by millions of gallons delivered around the country, amount to heating oil users paying millions if not tens or hundreds of millions of dollars for oil traders’ careless error.

Theoretically, oil markets only respond to two forces: supply and demand. However, as last month’s events show, the reality is that the whimsical perceptions of oil traders can have just as much influence on oil prices as supply and demand. Keep that in mind next time you notice the price of gas go up a few cents.

Oil traders: for crying out loud, check your facts! Put up a map of Africa in your cubicle, if necessary. Your mistakes can be expensive for the rest of us, so please do us the favor of making sure your perceptions are based on truth before you start the next buying frenzy.

The trio of Senators behind the latest push for climate legislation took a key idea from the oil majors’ playbook. (image: examiner.com)

The latest climate and energy legislation being floated in the Senate may have taken its inspiration from an unlikely source: Big Oil.

According to the New York Times, abandoning cap and trade in favor of a carbon tax—which the proposal by Sens. Lindsey Graham, John Kerry, and Joe Lieberman would do—had already been proposed by ExxonMobil, ConocoPhillips, and BP America. Refiners have complained about the unfairness of the cap and trade system passed by the House last summer, and their concerns have won over senators like Graham and the important swing vote of Democrat Mary Landrieu of Louisiana, whose state benefits from oil industry revenues.

Exxon, Conoco, and BP don’t necessarily speak for all refiners, but Sen. Graham hopes this initial industry support could win over oil-state senators needed to get any climate legislation through the Senate. Environmental and liberal groups are wary of the international oil majors, but would support the new proposal if it achieves emissions reductions.

The oil industry could have learned a lesson from the House bill, says The New Republic. The Waxman-Markey cap and trade provisions gave utilities more allowances than refiners, possibly because electric utilities played a more cooperative role during the legislative debate. The oil industry has changed tactics for the Senate debate, and now the latest Senate proposal includes the carbon tax on transportation fuels that the oil majors have made clear they prefer to cap and trade.

A 2004 report from the Institute of Energy Economics Japan, host of last weekend’s summit on oil prices. (image:eneken.ieej.or.jp)

Government regulators of oil markets from around the world called for harmonized regulation of over-the-counter markets and greater transparency of supply and demand data in an effort to curb oil price volatility, BusinessWeek reported on Sunday.

Regulators convened in Tokyo last weekend for the International Energy Agency’s “oil price formation workshop” along with representatives from the financial sector and oil industry. Attendees included regulators from the US Commodity Futures Trading Commission (CFTC), whose members have repeatedly stated their intention to tighten regulation of energy markets.

At the conclusion of the meeting, statements from the IEA and others outlined two courses of action that would combat volatility in oil prices: coordinated regulation of over-the-counter (OTC) oil trades across all international markets and more complete and transparent data on supply of/demand for oil.

From BusinessWeek:

“Regulatory authorities in many countries are cautious about systemic risks that could be led by a lack of transparency in OTC transactions,” IEA Executive Director Nobuo Tanaka said in an interview in Tokyo today. “It is very important to expand the network of transparency.”

OTC transactions refer to the trading of commodities-based derivatives outside of regulated exchanges like the New York Mercantile Exchange that are not subject to oversight by the CFTC or any regulatory body. OTC trades allow for huge speculative bets to be placed on oil that could distort the market and bring about major price swings. With greater transparency and some oversight, regulators hope to reduce the influence of OTC trades on prices and reduce volatility. In January, CFTC chairman Gary Gensler advocated bringing OTC transactions under the purveyance of clearing houses—third-party companies that oversee derivative trades—that would provide needed oversight. Such a move would require close cooperation among international regulators to ensure that derivatives trading rules were consistent across international borders. A lack of such consistency would allow traders to circumvent regulators by simply taking their transactions to a different country. CFTC commissioner Scott O’Malia emphasized this point: “We need to make sure rules and standards are right. We are managing a risk appropriately and consistently because clearinghouses are very important and we can’t have any failures.”

A joint statement issued by the IEA and the Institute of Energy Economics Japan, which hosted the summit, also called for more accurate and transparent data on oil demand and oil supplies. Estimates of oil consumption and world stockpiles of petroleum products vary widely, making it difficult to get a clear picture of the oil market at any given time and evaluate whether or not prices reflect that picture accurately. For example, data on crude oil and product stockpiles in the US are released twice a week, first by the industry group API and then by the Department of Energy’s EIA. Even though these reports are released within less than 24 hours of each other and cover the exact same data, they consistently report wildly different numbers that often vary by several million barrels. Transparent and verifiably accurate data on how much oil is in storage would hopefully stabilize prices by reducing extreme speculative bets by big traders that may push prices up or down.

The positive outcome of the Tokyo meeting is what appears to be a consensus among regulators and market players as to what needs to be done to reduce oil price volatility that plagues heating oil users, drivers, and other petroleum product consumers worldwide. However, whether or not that leads to concrete action is a different question altogether. Here in the US, the CFTC has been talking tough about energy commodities regulation for almost a year. But with the exception of introducing generous position limits that critics say will have no effect on oil prices, the commission has done nothing to advance their stated cause.

If the CFTC’s inaction proves to be a model for regulators who attended the summit, consumers have nothing to look forward to but the same unpredictable and intractable gasoline, diesel, and heating oil prices that they have come to despise.

Thermal image of a (heated) house on a cold night. A federal program's temporary termination would cause the number of homes without heat to grow considerably. (image: epogee.co.uk)

As reported Monday by the New York Times, applications for heating assistance in the United States have reached record levels for the third consecutive year. Soaring demand for federal heating assistance has forced states to scrape the bottom of the $5.1 billion federal heating assistance program known as LIHEAP (Low-Income Home Energy Assistance Program). That sum, allocated by Congress to be spread out among every state, has not budged from its 2008 levels despite the past year’s increase of over one million applicants. The pressure has led state officials to warn Congress that they may have to discontinue further heating grants if no more money is awarded to the program.

Utility companies, barred in many states from shutting down service during the winter, wait until the spring to sever connections to households with unpaid bills. Until receiving the backlog of payments, they will then wait indefinitely before again providing heat, even as winter returns. Despite the staggered sequence of this scenario, when coupled with the millions of jobless who will see their unemployment checks expire this April, it means that untold numbers will be faced with no gas and electricity during the spring and coming winter.

The World Socialist Web Site (WSWS), unsurprisingly, puts the matter in starker terms than the New York Times, calling the need for heating assistance a “social crisis mounting.” Though it strikes a disarming tone for readers unused to getting news from sites devoted to social revolution, that strong wording attaches a proper weight to the underreported impact of energy prices on struggling Americans.

Without heat, people die. Iowa LIHEAP director Jerry McKim stated: “This is more than an energy issue and needs to be acknowledged for what it is: a serious public health matter.”

He explained this evaluation by pointing to heat deprivation’s blow to other necessities.

In an effort to better afford their utility bills, many elderly households cut back on prescribed medicine and/or set their thermostats too low risking their already insecure health and families with young children sacrifice their children’s nutritional needs…Disconnected households use unsafe methods of heating that increase the risk of carbon monoxide poisoning, and those who live by candlelight increase the likelihood of a house fire tragedy.

The WSWS makes the point that even a temporary (one to two months, as reported by the Times article) cut-off in assistance would lead to thousands of people enduring this winter and the next without heat—as mentioned above, utility companies will not restart services until overdue bills have been paid.

The unusual breadth and duration of the present recession will likely push these conditions further into the mainstream. On the one hand, heating oil consumers are at a disadvantage because they rely on a fuel that is provided by private companies, not utilities. No law protects heating oil dealers from cutting off service due to unpaid bills, so people faced with revoked or denied heating oil assistance will not be buffered from harsher consequences.

On the other hand, heating oil consumers in dire straits are at an advantage because their heating fuel service has no connection to their financial standing with utilities. Therefore, heating oil users are not required to pay electricity and telephone bills in order to have heat. It is also worth pointing out that, because heating oil dealers are private companies, they benefit consumers because they compete with one another for the lowest price, unlike utilities which usually enjoy a monopoly.

The flip side of this issue is the difficulties experienced by heating oil dealers. After speaking to 150 heating oil dealers in ten different states, we at HeatingOil.com have learned that in these economic times it is not unusual for heating oil customers to default on their payments by thousands of dollars per month. The burden builds every month as new customers default and previous balances go unpaid. Contrary to the popular belief that the oil industry equals “Big Oil,” heating oil dealers are small businesses that deal with their problems in the same manner as would a local grocery if people stopped buying their goods. When they can’t pay for operating costs, they shut down. Representatives of HeatingOil.com have seen a trend of heating oil dealers raising their credit standards for customers by 8-10 percent during the recession.

* * *

The Low Income Home Energy Assistance Program, or Liheap, was installed in 1982 out of the recognition that residential fuel needs comprise a social welfare issue on par with food and medicine. Its awards an average of $500 per season to its recipients, who are typically families below the federal poverty line, the disabled, and the elderly, but also include people at 150% the federal poverty line. Some states, such as Wisconsin, have committed supplemental funding to their program, permitting aid for applicants with incomes up to a percentage of the state’s median. According to the Times, heating aid applications were 7.7 million last year, 5.7 million in 2008, and are projected to be 8.8 million by the end of this year.

Competition from the Borco terminal in the Bahamas could add to US refiners’ troubles. (image: vopak.com)

Refineries in the US have been hit hard by the recession, which cut demand for refined oil products, and the industry continues to struggle. As oil companies consider idling or shutting down refineries, the industry now confronts another challenge 80 miles off the coast of Florida: the expansion of the Borco oil terminal on the Island of Grand Bahama.

The terminal plans to add 6 million barrels of storage capacity by 2011, reports Reuters on ForexPros.com. Borco’s existing storage capacity already tops 20 million barrels, but primarily holds heavy fuel oil or crude oil; much of the crude oil held at Borco gets sent to the US for processing. The new storage capacity, on the other hand, is designed to hold light refined products such as gasoline, diesel, and heating oil.

Those 6 million barrels of refined fuel products could compete directly with US refiners. “If you’re on the East Coast, you better be ready for competition,” said Tim Day, the managing director of First Reserve Corp., one of the owners of the Borco terminal. “A light sweet refiner making gasoline on the East Coast could suffer long term.”

Already suffering refiners hardly need another cause for worry. Borco’s move surprised some because one of the long-term trends hurting refiners is shrinking fuel demand in the US, a trend that would also affect Borco’s efforts to sell refined oil products to the US market. If conservation efforts, such as those that have reduced demand for heating oil, continue or increase, Borco and US refiners could be competing for shares of an ever-smaller market.