Cold snap adds to heating-oil price woes

Low inventories and the loss of Venezuela's crude-oil supply coincide with a chilly winter.

Consumers are going to have to dig deeper into their pockets to stay toasty this winter.

A combination of a colder November and December and a supply disruption from Venezuela is pushing up the price of crude oil and natural gas. The price of crude oil, which is used to make home-heating oil, has spiked 20 percent in the past month and is more than twice as high as last winter.

Within the past few days, natural gas prices have risen sharply as well and consumers may find their bills could be double those of last winter.

"If it stays cold, we could have problems," says Dave Costello, an analyst at the Energy Information Agency, part of the Department of Energy (DOE).

Those problems could go beyond higher prices and may include oil companies scrambling for supplies. This week, several oil companies who count on Venezuela crude, asked the Department of Energy to open up the Strategic Petroleum Reserve (SPR). Both DOE and the White House said it would not do so. However, two years ago, President Clinton released oil from the SPR when supplies ran low during a cold snap.

At the moment, heating-oil inventories are lower than they usually are at this time of year. This is the result of higher demand because of a late fall that has been 16 percent colder than normal. The cold is also reducing the supply of natural gas, which seemed plentiful at the start of the season.

Impact of Venezuela's crisis

But, the biggest factor is the loss of crude oil from Venezuela, the fourth-largest supplier to the US. "The markets almost completely ignored it and now it is hitting the US head on," says Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA). "The seriousness of the crisis was underestimated."

As long as Venezuela is out of the market, there could be upward pressure on prices. Normally, Venezuela exports about 3 million barrels of oil per day. That is down to about 400,000 barrels per day as protesters have blocked roads and shut down the nation's refineries.

"If the shutdown goes on for a few more weeks we will feel it strongly," Mr. Yergin says.

Two years ago, oil companies purchased fuel oil from Europe and Russia. EIA's Mr. Costello says the government expects any gaps this year will be filled by such imports again. "It's a safety valve to stave off a really bad situation," he explains.

Higher energy prices could hurt the sputtering economy. Mark Zandi of theEconomy.com, an economic web site, says the US can live with oil at $30 per barrel. "But, it won't take long for oil at $35 to $40 per barrel to start to have an adverse impact."

For example, he says every $5 rise in the price of oil can shave .4 off the following year's Gross Domestic Product. "If we are having trouble growing, it could be too much for the economy to bear," he predicts.

The average household spends about 5 percent of its budget on energy. But, for individuals making less than $50,000 a year, energy consumption is closer to 10 percent of their budget. "It's not something that is easy to meet when prices are rising and your household is on a fixed income and you have to heat your home," says Mr. Zandi.

In fact, two years ago, social-service organizations reported that many senior citizens and others on fixed incomes were cutting back on their meals in order to stay warm.

Calls for helping the needy

This year, President Bush has proposed a reduction in the Low Income Home Energy Assistance Program (LIHEAP). Although Congress ultimately funded it at $1.7 billion, the same as last year, states are actually receiving money based on the $1.4 billion Bush proposed. "We're starting to hear horror stories all over," says David Fox, director of Campaign for Home Energy Assistance, an advocacy group in Washington.

Last year, for example, states ran out of money and turned down the needy before the end of the home-heating season.

"This year with energy prices higher and the winter colder, it's a combination more than the people in greatest need can handle," says Mr. Fox.

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