Crude oil supply is good for winter

Heating oil, gasoline inventories called thinner

November 23, 2006|By Cox News Service

ATLANTA -- The nation is heading into the winter holiday season with plenty of crude oil but with thinning stores of gasoline and heating oil, the government reported yesterday.

Last week, inventories of crude soared by 5.1 million barrels, which gave the nation 5.8 percent more than it had a year ago, according to the federal Energy Information Administration.

Gasoline inventories climbed by 1.4 million barrels. Even so, the reserve of gasoline is 0.8 percent less than in November last year. Heating-oil supplies fell by 1.2 million, although inventory levels were still 3.3 percent higher than a year ago, the EIA said.

Inventory is more than enough to meet the nation's needs, but the cushion is deflating.

And as the excess dissipates, prices tend to rise.

As a result, the nation could be a cold winter away from trouble, economist Rakesh Shankar wrote in an online posting yesterday for clients of Economy.com. "The weather is the wild card now."

Millions of households heat with oil throughout the Northeast and Midwest. That demand strains refineries and boosts prices for other oil products, including gasoline.

In fact, even without a cold snap, a gasoline price increase could be coming: Gas prices ride on those of oil, and oil probably will get more costly.

Anxious to prop up oil prices, the Organization of Petroleum Exporting Countries seems likely to cut its production quotas in a few weeks.

While they did not propel prices upward, OPEC countries had welcomed the huge windfall of revenue and came to depend on much of it, said George Orwel, senior analyst at the Energy Intelligence Group, a New York-based publishing and information company.

"Most OPEC countries depend on oil for their budgets," Orwel said.

OPEC accounts for about 40 percent of the world's oil production, more than enough to move prices if the group sets production quotas and member companies abide by them. But OPEC members often pay lip service to official quotas.

It often comes down to OPEC's largest player, Saudi Arabia. If it cuts back, the market will move.

As of yesterday - the day before Thanksgiving, a busy day for motorists - the average retail price of gasoline nationwide stood at $2.23 a gallon, 3 cents higher than last year.

That price is comparatively cheap considering the more than $3 per gallon drivers were paying in August.

Lower gasoline prices have been good for stressed households and a slowing economy, said Edmund T. Hyland, managing director at J.P. Morgan Private Bank in Atlanta.

"This takes some pressure off the consumer," he said. "It balances some of the weakness in housing."

Oil peaked in midsummer about $77 a barrel. Then it began a slide, fostered by an August cease-fire in Lebanon and an easing of U.S. tensions with Iran, as well as better-than-expected news about damage to the Alaska pipeline.

Supplies were ample, demand was slack, and speculators suddenly were bailing out of oil. Prices kept slipping, and fell to a 52-week low last week, below $56 a barrel.

But the equation is shifting again. Drivers are on the roads again after a postsummer lull, and the need for heating oil is beginning to increase.

Nationally, the price at the pump has averaged $2.57 a gallon this year, according to the American Petroleum Institute, a Washington-based industry association representing about 400 oil and natural-gas companies.

The API predicted that prices next year will average $2.48, better than this year's average but more than most drivers are paying now.

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