Heating oil: there's plenty and prices are stable

August 27, 1981

Like thousands of other American homeowners, you may be about to buy you first shipment of home heating oil for this coming winter. And like many people you may be surprised to find that the current price is not much higher -- maybe even a few cents lower, depending on you where you live -- than it was toward the end of last winter's heating season.

Unlike food and housing costs, which helped push consumer prices to the double-digit range last month, heating oil costs have remained relatively stable in recent months, according to the US Department of Energy (DOE); the National Oil Jobbers Council (NOIC), representing 8,000 oil suppliers; and analysts such as Warren Shimmerlik of Merrill Lynch, Pierce, Fenner & Smith Inc.

But while supplies are expected to remain abundant, barring an extremely harsh winter or some unforeseen change in the world oil situation, new doubts are being raised about the outlook for prices.

Most US oil refiners, even with supplies somewhat lower than they were this time last year, figure they can easily meet the demand of an unusually cold winter because of the added "safety catch" of being able to increase their refining capacity far beyond current levels.

At the same time, supplies of natural gas and propane also are plentiful, according to industry analysts.

Analysts are divided over how high the price of home heating oil will rise this winter. The range of predictions is somewhere between a low of 6 cents a gallon and a high of more than 20 cents a gallon. But one thing is certain, they say: The recent failure of OPEC (Organization of Petroleum Exporting Countries) oil ministers to agree on a uniform price hike will help hold down prices, at least until the next OPEC meeting in January. There is optimism, too , among some analysts that gasoline prices could even dip some more.

"We have distillate [home heating oil] coming out of our ears," said Donald F. Sands, general manager of operations for Amoco, describing the supply situation.

"There shouldn't be any problem with meeting demand from our standpoint," agreed Gerald Bradley, a spokesman for Gulf Oil Corporation in Houston.

"Barring any major disruption, supplies look adequate for this heating season ," added a Shell Oil Company spokesman, whose was echoed by an Exxon spokesman.

"We don't anticipate any kinds of [supply] problems," offered David Morehead of the NOJC.

Howevever, Dr. William Skinner of DOE warned that there was always the possibly of spot shortages developing on a localized basis "especially if we have an extremely cold and early winter." It should be pointed out, he added, that spot shortages did develop in scattered parts of the nation during last January's extreme cold spell, although this was mainly a distribution as opposed to a supply problem, with normal deliveries curtailed.

In the immediate aftermath of the severe shortages of gasoline in the spring of 1979 -- shortages first attributed to the Iranian oil embargo but later to the DOE's own ineptitude -- the Carter administration set a national target of 240 million barrels of middle distillates to be on hand by Oct. 1, 1979. The oil industry easily surpassed this goal and reached almost 247 million barrels by the end of October.

This year, the DOE's most recent "fourth quarter" price forecast of the national average cost of a gallon of home heating oil ranges from a low of $1.22 cents to a high of $1.43. But Dr. Skinner, the technical expert within the department who helped draw up these figures, says his best estimate would be "closer to $1.28." This would be almost 7 cents higher than DOE's most recent figure (as of May) for the average national price.

Mr. Shimmerlik of Merrill Lynch says heating oil will probably rise a few cents in October and later "possibly as much as 5 cents," if the OPEC oil ministers raise oil prices in January as some analysts believe.

But even if he is right, these increases will not result in a price hike of nearly 10 cents a gallon like the one that happened from January to February of this year because of a OPEC price hike and the Reagan administration's decontrol of domestic crude oil.

One factor widely expected to help keep distillate oil prices "soft" is increased competition that may result from shifts of oil customers to cheaper gas heat.

However, there is some evidence that that fewer people may switch from oil to gas this year. A spokesman for Brooklyn Union Gas Company, the largest supplier of gas heat in New York City, says oil marketers have been using "scare tactics" to keep customers from switching, warning that gas prices will skyrocket if price decontrol legislation pending in Congress passes.