Heating oil prices on fire this winter

Fuel: Some customers have seen a doubling of their bill as the price of crude continues to soar.

January 27, 2000|By Mara H. Gottfried | Mara H. Gottfried,CONTRIBUTING WRITER

Every night, starting last week, Dave Watkins has waited for the calls from his heating oil suppliers.

"One night the price went up 9 cents, another night 10 cents, even 20 cents one night," said Watkins, owner of White Marsh-based Watkins Fuel Co. Inc., which delivers heating oil to about 1,500 area homes and businesses. "I've never seen the prices go up so drastically. I'm paying a higher price than I've ever sold my oil for."

His customers are feeling the pinch. One says her delivery this week cost her $1.60 a gallon, up from 88 cents a gallon in November.

Crude oil prices began soaring toward $30 a barrel last week, reaching levels last seen on the eve of the Persian Gulf war in August 1990.

On the New York Mercantile exchange yesterday, the price of heating oil for February delivery rose 5.62 cents, or 6.2 percent, to 96 cents per gallon. However, West Texas intermediate crude fell $2.02 a barrel to $27.84.

Yesterday, the American Petroleum Institute reported that U.S. inventories of distillate fuel, which include heating oil, fell a greater-than-expected 8.3 million barrels last week to 114.7 million barrels, the lowest since June 1997.

Tuesday's unexpected snowstorms on the East Coast sent heating oil prices up an additional 4 percent. Oil prices have risen 46 percent since Jan. 10.

Most analysts agree that, while the high prices may temper economic growth, it won't derail it.

"This will tend to slow the economy down," said Merrill Lynch & Co. senior economist Stan Shipley. "Consumers will have less purchasing power to buy other goods and services. Since consumers have to heat their homes and fill their gas tanks to get to work, they'll have less money on hand to buy things like new refrigerators or Pokemon cards.

"There's so many other things happening with the economy that it won't push us into recession."

Watkins said he has heard grumblings from his customers about the rising prices for heating oil.

"Many seem shocked when they hear the price," he said. "I hear people talking about how they can't pay the bill because they don't have enough money up front."

Baltimore resident Eva Kasten was disturbed after she saw the bill for a Tuesday delivery of heating oil from Watkins Fuel.

"It was $1.60 a gallon," she said. "I think it's ridiculous. I paid $1.15 a gallon at the end of December and 88 cents a gallon in November. But I guess there's nothing I can do about it."

Several factors have driven crude oil prices up. The most significant is the Organization of the Petroleum Exporting Countries' announcement in March that it would cut production by 4.3 million barrels a day. The recent cold snap has caused increased demand.

"The combination [of OPEC's announcement and colder weather] has increased the demand for heating oil and caused a shortfall of 2 [million] to 3 million barrels a day," said Dave Khani, vice president in energy research at Arlington, Va.-based Friedman, Billings, Ramsey Group, Inc. "Oil prices are also spiking up, because there's built in here the expectation that OPEC is going to continue to extend their production cuts into September."

How much oil prices will rise and for how long is a function of the weather and the outcome of OPEC's March meeting, Khani said.

"I think short-term it can go over $30 a barrel, but that's not a sustainable price in the long run," Khani said. "Oil prices will go back down in the next six months. I see more sustainable prices between $20 and $25 a barrel."

Khani said some companies, such as airlines, will feel the impact. Some airlines have recently added surcharges to ticket prices because of higher jet fuel prices.

Rick Phelps, president of Baltimore-based Carroll Independent Fuel Co., said his company has felt the strain.

"All of a sudden my cost of goods is almost doubled," said Phelps, whose company supplies heating oil to about 20,000 customers in Central Maryland. "It costs us more to operate."

Adam Sieminski, an oil analyst at Deutsche Bank Alex. Brown in Baltimore, said this price rise isn't creating as many problems as it would have in the 1980s or 1990s. "Most economists aren't as concerned about this, because energy isn't as large of a factor as it was 10 or 20 years ago," he said.

"The actual impact on consumers won't be that great. People might complain about higher prices at the pump, but I don't see any fewer [sport utility vehicles] on the road."

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