Winter forecast: chilly, but home heating oil aplenty
The 12.7 million homeowners who count on fuel oil to heat their homes should stay toasty this winter.Skip to next paragraph
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At least that's the forecast of the US government, some of the nation's leading suppliers of distillate fuel oil, and the nation's oil jobbers, who deliver it. They believe there will be adequate supplies of home heating oil this winter. Their optimism comes in the face of a cold forecast and low inventories.
''It looks real good from a supply and price standpoint,'' says David Morehead, director of communications for the Washington-based National Oil Jobbers Council, which represents independent petroleum marketers. This optimism is echoed by Al Linden Jr., deputy administrator of the Energy Information Administration: ''The ingredients are all present for adequate supplies of home heating this winter.''
A. W. O'Donnell, vice-president for fuels and lubricants at Gulf USA, a subsidiary of Gulf Oil, says, ''We've gone to a lot of pains to make sure our storage tanks are full, and we've done everything we can to maximize distillate production.'' Distillate is home heating oil. Gulf, which is one of the largest suppliers of home heating oil - with 7 to 8 percent of the total market - has even gone so far as to buy extra distillate on the open market.
Texaco and Exxon, other large suppliers of home heating oil, likewise say they feel comfortable with their supplies. A Texaco spokesman comments, ''Demand is down and we feel our supplies are sufficient, based on a normal winter, to meet our contractual agreements.''
Smaller refiners are also optimistic. Robert J. Kutil, president of Agway Petroleum Corporation, headquartered in Syracuse, N.Y., says that barring any disruptions in the Middle East, there will be adequate supplies of fuel oil, with slight monthly price increases during the heating season.
Even with this optimism, some eyebrows have been raised because the level of inventories are so low. According to the American Petroleum Institute's latest report, as of Sept. 30 there were 163.2 million barrels of distillate in storage , compared with 207.3 million in September 1981.
As Mr. Linden of the Energy Information Administration notes, however, demand has dropped to 1972 levels, because 3 to 5 million people have switched to natural gas.
Even if the winter should be worse than expected, Mr. Linden says, the additional demand would be easy to meet.
Chris Smart of Webber Energy in Bangor, Maine, says that even though prices have started to rise, he expects prices to move up only 5 to 10 cents a gallon. Price will vary according to region and state taxes.
On the New York Mercantile Exchange, futures prices for home heating oil have been rising steadily since September. Tom Waterman, associate editor of the Oil Buyer's Guide, an industry newsletter that tracks prices, says that over the past month ''there have been a tremendous amount of rumors about the lack of supplies, and with predictions of a severe winter, distillate prices are up about 10 cents a gallon.''
But he notes that ''heating oil distributors are unconcerned and feel there is an adequate supply.'' He adds that last year, oil jobbers and other secondary suppliers overstocked their inventories and got burned. Thus, they have been slow to restock.
One reason for this slowness, he notes, is that distillate can be produced quickly. With refineries operating at only 73 percent of capacity, oil buyers feel supplies will be available even if the winter lives up to the forecasts. Refiners likewise have been slower than usual in producing distillate, because when they refine crude oil into distillate they get 2 gallons of gasoline for every gallon of distillate produced. During the winter months, there is little demand for this gasoline.
Because the prices they are getting for their products have risen, most of the major oil companies have agreed to pay higher prices for domestic crude oil. Within the past week, Exxon, Sun, Shell Oil, and Amoco have raised the price they will pay for a barrel of crude by $1 a barrel. Earlier in the month Gulf had also raised the price it pays.
Despite these increases, crude oil, the raw material for distilled oil, remains plentiful. One source at a major oil company points out that the Organization of Petroleum Exporting Countries, which is producing about 18.5 million barrels of oil per day, has the capacity to produce at least 10 million barrels per day more.
Thus, the companies, rather than build up their inventories to meet the peak heating season, have decided to lift more crude oil from OPEC when they need it.
The same source estimates that OPEC will increase production about 21/2 million barrels a day this winter. He says, ''One of the major conclusions we've come to is that in this age of excess capacity, there will no longer be big swings in inventory.'' Rather, he notes, oil companies will count on buying crude from OPEC when they need to refine more product. Thus, if there is an extremely cold winter he concludes that supplies will be 'tight,'' but not short.