Next Price Shock: Home-Heat Oil

THE first shock from the Mideast crisis - rising gasoline prices - is already rippling through the United States economy. The second shock is headed directly for the Northeast. Home heating oil prices are headed up. Perhaps way up.

``That's going to be a big price jump,'' says Robin Shoemaker, an oil analyst with Shearson Lehman Brothers.

If a confrontation erupts between Iraq and the multinational forces in the Gulf, then consumers in the Northeast could see home heating oil move close to the record prices set in 1981, analysts say.

Already, wholesale heating oil prices are trading 70 percent above levels a year ago. On Friday, the benchmark No. 2 heating oil closed at 91 cents a gallon on the New York Mercantile Exchange. That compares with about 55 cents a year ago.

No matter what happens, analysts say consumers using oil to heat their homes should expect to pay more this season than last. That will hit the Northeast US hardest, since it accounts for the bulk of home heating oil use. Five states in the region - New York, Pennsylvania, Massachusetts, New Jersey, and Connecticut - alone account for 60 percent of US consumption of the fuel, according to the US Energy Information Administration (EIA).

Three scenarios

How high prices go depends on the weather and what happens in the Middle East. Oil analysts chart out three scenarios:

If the situation is resolved peacefully, and Iraqi and Kuwaiti production reenter the world market, oil prices will fall to somewhere above $20 a barrel. That would mean consumers would pay an average $1 a gallon for home heating oil, says Dennis Winters, senior associate with DRI/McGraw-Hill's oil service. That's 6 cents a gallon more than last year's average retail price, according to the EIA.

If the standoff continues and, as expected, other oil-producing countries increase their production, home heating oil could reach $1.25. Morris Greenberg, vice president of energy services for the WEFA Group, estimates the price could reach as high as $1.40 a gallon.

If the confrontation becomes a war and some Saudi oil production is damaged, then oil prices could shoot to $40 a barrel or higher, these analysts say. That would push the retail price of home heating oil to $1.50 or even $1.60 a gallon, at least in the short term.

``We have seen these prices before in the winter of 1981,'' says Mr. Winters. In March 1981, the price peaked at $1.29 - or about $1.70 in today's dollars, when adjusted for inflation, according to the EIA.

The weather factor

Of course, the severity of the winter also plays a role in heating oil prices. Consumers were rudely awakened to that fact last year, when the coldest December in 60 years caused a surge in demand and sent prices soaring. The EIA estimates the average heating-oil householder in the Northeast saw his or her December heating bills rise 50 percent over the year-ago figure.

That crisis was short-lived, however. Prices tumbled after the cold snap was over. When the December surge was averaged over the entire October through February heating season, the EIA estimates the typical household spent only an added $14 per month above the year before.

This winter, however, higher prices will be around to stay.

``No one is going to go cold. There will be enough fuel there to meet their [consumers'] needs,'' says David Morehead, spokesman for the Petroleum Marketers Association of America. But a continuation of the Mideast crisis ``would put pressure on prices.''

So far, the consumer outcry has been directed at prices of gasoline, rather than heating oil. That's not surprising, since summer is traditionally the peak driving period when gasoline prices rise anyway. But as this driving season winds down, the focus in the Northeast will shift inevitably to heating oil.

Already, the Petroleum Marketers Association, whose members handle about 75 percent of the nation's home-heating oil, is getting reports of oil companies charging high prices for home-heating oil.

States in the Northeast are closely tracking gasoline and home-heating oil prices for signs of price gouging. New York has launched an investigation into price-gouging by service stations. Last Monday, the attorneys general from 24 states and representatives of 12 other states met in Washington, D.C., to press federal officials to take action against price-rigging by oil companies.