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SOURCE: Department of Energy/AP |
Energy costs this winter: high
Heating-oil and natural-gas prices are already up, and gasoline costs could rise, too.
from the September 20, 2007 edition
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"We have not seen gasoline prices rising correspondingly because inventories are kind of high. But over time, we will see higher prices at the pump," says Scott Brown, chief economist for Raymond James & Associates in St. Petersburg, Fla.
Yet some analysts are not convinced oil prices will stay this high. "Both the US and Europe are moving into the refinery maintenance period," explains Mark Routt, an energy analyst at Energy Security Analysis Inc. in Wakefield, Mass. "When refineries are down for maintenance, their requirement for crude-oil products drops."
But the dynamics of the oil markets are also affected by economic policy. After the Federal Reserve dropped interest rates by half of a percentage point on Tuesday, the dollar dropped in value compared with the euro. "Oil is priced in dollars, so when the dollar goes down, the price has nowhere to go but up," says Mr. Brown.
The relatively strong economy has also bolstered demand for diesel, which is now selling for more than the price of gasoline. On a year-to-date basis, diesel demand is up 9 percent, says John Felmy, chief economist for the American Petroleum Institute in Washington.
Some oil-market participants blame speculators, hedge funds, and pension funds for the rise in crude-oil prices. "Oil is the new investment tool now that real estate has dropped off the charts," says John Maniscalco, executive vice president of the New York Oil Heating Association. "Now, they are hyping up this coming heating season, centering on home heating oil and spiking the price."
Part of the problem, Mr. Routt says, is the changing dynamics of the home heating oil and diesel markets because of new regulations requiring low-sulfur diesel. Heating oil and diesel must be kept in separate tanks and run through separate pipelines since there is risk of contamination.
Heating oil is now at the lowest number of supply days in the past five years, Routt says. But diesel inventories are on track. "Fewer companies want to touch heating oil," he says. "But if you look at diesel and home heating oil together, it's right where it needs to be."
In a worst-case scenario, consumers who normally use home heating oil may have to use diesel fuel and pay diesel prices this winter, Routt says.
So far, the higher prices have not affected too many people. Few consumers have started to fill up their fuel tanks for the winter yet, Mr. Maniscalco says.
"They are still filled up from the springtime," he says. "The first surge comes with the first cold snap."
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