Oil and gas surplus lowers heating-oil prices to make for cozy winter

November 7, 1988

The country is ready for Ole Man Winter. Even if the nation gets a prolonged blast of Arctic air - as some weather forecasters predict - energy experts believe there is enough oil and natural gas on the world markets to keep room temperatures normal.

And while prices would normally be rising to reflect increased demand that comes at this time of year, home heating oil prices are down.

``This is the best start to the winter I can recall,'' says Robert Lynch, executive vice-president of the Empire State Petroleum Association.

Energy experts are particularly cheered by the falling prices. In New York State, for example, home heating oil prices are currently 5 cents per gallon less than the end of May and about 7.5 cents a gallon below last year at this time.

The main reason for the dropping price is disarray in the oil markets. The price of West Texas Intermediate crude oil hit $13.45 last week and Dubai light crude is selling at just over $10.84 per barrel. A year ago, similar crude sold for over $16 per barrel.

Behind the price drop is a price war among the members of the Organization of Petroleum Exporting Countries (OPEC), which is now pumping 2 to 3 million barrels of oil per day over its stated quota of 18.5 million barrels per day. Saudia Arabia, upset with the large amounts of oil being exported by Iran and Iraq, is reported to be pumping 7 million barrels per day in an effort to reduce oil prices to ``punish'' some other OPEC members.

``There's a real price war going on,'' says Dennis Eklof, an energy analyst at Cambridge Energy Research Associates. Although OPEC is scheduled to meet Nov. 20 to talk about prices, Mr. Eklof expects no substantial new agreement.

For consumers, the OPEC battle means less money will go to the oil delivery man. Al Bassano, managing editor of the Oil Buyer's Guide in Lakewood, N.J., says he just paid 63 cents a gallon for the oil to fill the tank in his home. He estimates this is about 8 cents a gallon less than he paid last year. By shopping around, he says, ``a price-conscientious consumer can do well.''

``Yes, we're saving money,'' says Steve Cowell, executive director of the Fair Share Development Corporation, a cooperative with 10,000 members who get their oil at the wholesale price of 40 to 46 cents per gallon. Mr. Cowell estimates the members will save $170,000 to $200,000 this month if prices hold at current levels.

Even customers of full-service firms that use computers to tell them when to automatically top-off fuel tanks will save money. They are selling fuel for about 83 cents per gallon compared to 85 cents per gallon last year at this time. Retail prices at this level have not come down nearly as fast as the price of wholesale or crude oil.

For the poor, lower prices will be especially welcome since the Federal government lopped $148 million off the Low Income Energy Assistance Program this year. Prices may be lower, says Beverly Mayhew of the Boston-based Citizens Energy Group, but ``low-income families are still under a lot of pressure with cuts in this program.''

Natural gas customers may not get the same bargains as those using oil.

John Hoffman, editor of the Gas Price Index, a trade publication, says some customers in the Pacific Northwest and the Rocky Mountain states may see lower gas prices this season, while those in urban areas may pay more, depending on the buying practices of the local utility.

Reflecting tight pipeline availability, some gas prices are 25 percent higher now than they were last fall.

Forecasts about energy prices are peppered with caveats. OPEC members might curtail excess production. Fires could knock out major refineries. Or severe weather could make it difficult to get the surplus crude to the refineries, or the refined product to the customer. ``The system was never designed to deal with every emergency,'' says John Lichtblau, president of the Petroleum Research Foundation.

Even in the event of a ``very cold'' winter, the American Petroleum Institute said in a report issued today that heating oil supplies will be adequate. But if it is a truly severe winter, Mr. Lichtblau says, ``Well, you can't prepare for that.''