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Heating oil users face costly winter
Soaring fuel prices take ever-harsher toll in N.E.
By Robert Gavin, Globe Staff | November 1, 2007

As the price of crude oil approaches $100 a barrel, New Englanders are bracing for their most expensive winter ever.

One of every two homes in New England burns heating oil, compared with just one in 20 in the rest of the country, where most homes use natural gas, according to the Energy Department. Now, as heating oil follows crude to record prices - the state this week reported the average cost of heating oil was $2.91 a gallon, up 24 percent from a year ago - the impact will fall most heavily on New England, economists said.

"Prices are crazy," said Patrick Melia, owner of Melia Fuel in Marshfield. "People are scared, and they should be."

Madeline Sanabria, a single mother of three, certainly is. Sanabria, 29, who makes just under $40,000 a year as a medical biller, said she hasn't turned on the heat yet in her Roslindale apartment, telling her children on chilly nights to throw another comforter on the bed. She has also stopped buying snack cakes and other treats for her children in anticipation of sharply higher winter heating bills.

"Do you choose food, or do you choose to be heated?" she said. "Just hearing the news about oil, you have to cut back."

As energy costs rise, consumers have less to spend on everything else, creating another headwind for an economy already slowed by the plunging housing market, said Alan Clayton-Matthews, a University of Massachusetts at Boston professor who studies the state economy. The full impact of higher heating oil prices will depend on the severity of the winter, he said, but the increase "will definitely affect consumer spending, particularly households with tight budgets."

Higher energy costs and a softer economy are cutting into sales at Papa Gino's, the Dedham restaurant chain, said Michael McManama, senior vice president for brand development. In recent years, the company's pizza sales grew at more than twice the industry average, McManama said. Now they are flat.

"People have to make choices," McManama said, "and we believe they are eating out less."

John Larson, a self-employed carpenter, is among those staying home - and bundling up. He and his wife, Sheila, a Boston schoolteacher, own a three-story Italianate Victorian on Dorchester's Ashmont Hill, and their heating bills have become the stuff of nightmares as oil prices have climbed in recent years. When friends visit during the winter and complain about the cold, Larson said, he doesn't turn up the heat. He tells them to put on a sweater.

The Larsons have spent about $20,000 since they bought the house nine years ago to replace storm windows, insulate, and winterize the 137-year old home. But rising heating oil prices gobbled any savings from improved energy efficiency. A year after buying the home, the winter heating bill was about $3,000. This year, the Larsons, on a monthly budget plan, are on track to pay $5,700 - based on current prices.

"Just when you think oil can't go any higher, it breaks $90 a barrel," Larson said. "I'm terrified."

Heating oil prices have climbed steadily in recent weeks, despite healthy inventories, mild temperatures, and shrinking demand. The reason: record crude prices. Crude accounts for at least 60 percent of the cost of heating oil, and yesterday it surged by more than $4 a barrel during trading in New York to close at a record $94.53.

Supporting crude prices are strong global demand and tight supplies, said Mary Novak, energy economist at Global Insight, a Waltham forecasting firm. The world's thirst for oil is growing by 1.5 million barrels a day, up from 1 million last year, and oil producers can barely keep up.

As a result, Novak said, the Organization of Petroleum Exporting Countries' reserve capacity has plunged to 1 percent of total production from about 5 percent in 2004, meaning there's not much more oil that can be brought to the market should war or disaster interrupt supplies. That has attracted hedge funds and other speculative investors that bid up crude at any hint of a supply disruption that could lead prices to spike.

Crude oil has been rising steadily since August, setting records almost daily in response to world events. Earlier this week, for example, it climbed $1.67 a barrel after Mexico said it would shut some off-shore production because of storms. Last week, tensions between Iraq and Turkey over Kurdish guerillas pushed crude past $90 for the first time. All told, economists said, speculation has probably boosted crude prices by $10 to $20 a barrel, adding about 40 cents to a gallon of heating oil.

"This is an investment-led rally, built on what if something happens," said Darin Newsom, senior analyst at DTN, a commodities research firm in Omaha. "I don't think we've topped out yet."

New England's heating oil market is increasingly at the mercy of these global forces. Many heating oil dealers have stopped offering season-long contracts at fixed prices because the market has become so volatile and unpredictable. Two years ago, the cost of heating with oil or natural gas, the two most popular fuels, was roughly the same; today, oil is so expensive that the cost difference between the two is the largest it has been since at least 1991.

Local fuel-oil dealers buy in the same markets as global hedge funds, lightly regulated investment vehicles that use complex strategies to boost returns for wealthy clients. Before hedge funds poured into energy markets, dealers say, they could reasonably forecast prices based on fundamentals like supply, demand, and weather. Then they would put together a mix of futures contracts, which guarantee prices several months in advance, and spot purchases to offer fixed rates to customers without risking their business.

Now, local dealers say that strategy is too risky.

"How do you explain hedge funds to Mrs. McCarthy?" Melia asked.

The poor, who spend a higher share of income on heating, will bear most of the pain, economists said. Though prices have soared, federal fuel assistance has declined. In 2005, when the average price of heating oil in Massachusetts hit $2.49 a gallon, a family of four earning $21,000 qualified for about $1,100 to help cover heating bills, according to Action for Boston Community Development, a nonprofit that administers the program locally.

Now, with the average price at $2.91 and climbing, the program pays that family just $715. Yesterday, Governor Deval Patrick said the state would contribute $15 million to the fuel assistance program, which would provide $150 more in aid to that family, according to the agency. Still, a current prices, that's barely enough to fill the typical 250-gallon tank, and New England households usually need two to three tanks of oil to get through the winter.

"The misery index is just going to rise," said John Drew, the nonprofit's executive vice president. "And it's only going to get worse as the winter gets colder."

Ellen Sdrollas of West Roxbury lives with her 17-year-old son on a $635-a-month disability check. Even with the new state money, they will likely receive less than $500 in fuel assistance for the winter. Last year, they suffered through a month of midwinter without heat, huddling around a gas oven while they scraped together money to fill the oil tank. Now, she despairs at how long they might go without heat this winter.

"I just don't know what to do," said Sdrollas, 51. "We barely eat already."

Robert Gavin can be reached at This email address is being protected from spam bots, you need Javascript enabled to view it .



© Copyright 2007 The New York Times Company

This is an example of pressures on families who do hourly work. World trade and a weak dollar are good for big business. Wall Street is booming, GDP is rising. But look at my son's family. Two elementary kids, wife is a secretary, he is fabricator. His firm has good business but his wages are not rising enough to equal the rises in gasoline to go to work (remember, mass transit in NH is a dirty word), the cost of #2 fuel oil to heat his home, and the subsequent rises in food prices due to oil (both transportation and packaging). So in this economy now that Washington wants to characterize as "happy days are hear again" this segment of the population is anything but happy. This is the blue collar working folks who used to be middle class but are far from it now. I don't know what the answer is but it annoys me everytime I hear some politician tell me how good everyone has it.
And the food pantry in Wolfeboro, I'll bet, will be sorely taxed this winter to supply the demand, given that folks will decide to be warm over being full and will seek assistance for food.

Now if you could only get CW to take off his blinders and face reality.

olcurmdgeon wrote:

QUOTE:
"...As the price of crude oil approaches $100 a barrel, New Englanders are bracing for their most expensive winter ever..."
© Copyright 2007 The New York Times Company

The New York Times has insider information on New England temperatures this winter?

olcurmdgeon wrote:

QUOTE:
"...Higher energy costs and a softer economy are cutting into sales at Papa Gino's...In recent years, the company's pizza sales grew at more than twice the industry average...Now they are flat..."

One pizza company's sales is a trend?

I can't get Papa Gino's where I am now, but I have a coupon for 2 large pizzas for $20. As a frugal New Englander, I won't be using it as I can do far better with home cooking.

olcurmdgeon wrote:

QUOTE:
"..."People have to make choices," McManama said, "and we believe they are eating out less..."

That's very extravagant living; in NH, you pay an additional 8% tax in addition.

Mass transit hasn't worked for Los Angeles, where people are packed-in compared to New Hampshire. Your son—if he does serious commuting—needs a VW diesel (45-MPG) a Prius, or a Honda. When I had to, I towed a trailer with a 60 HP VW camper.

BTW: The Japanese use kerosene heaters that became all the rage decades ago in the US. They are 99.9% efficient (far better than oil), and are available in 40,000 btu units.

It shouldn't be long before Socialist Hugo Chavez offers deliveries of oil at huge discounts "as a gift to the American people".

And Americans will love him for it.

This is a printer friendly version of an article from www.fosters.com

Article published Nov 2, 2007
Heating prices soar

SOMERSWORTH It hasn't snowed, people aren't wearing fur-lined parkas, and Christmas trees are still plentiful in the forests.

It certainly isn't winter yet in New Hampshire—though the price of heating oil would suggest otherwise.

"We're at $2.92 (a gallon) right now. We never went above $2.49 last year," said Edson Smith, president of Borderline Fuels in Somersworth.

In Maine as of Oct. 29, the average price of heating oil was $2.85, compared to $2.20 at the same time last year, according to maineenergyinfo.com.

Those prices will rise when it gets colder in January and February, increasing to as much as $3.10 a gallon, according to projections by the National Energy Assistance Directors Association. The average price of heating oil was $2.42 last year, meaning this year's prices are expected to jump 28 percent, all of which Smith said means bad news for residents who didn't get their oil tank filled at the end of the summer when prices were lower.

Likewise for people who spurned the popular lock-in price program, in which customers agree in advance to pay a flat rate for heating oil in the winter.

Gretchen Straub, a South Berwick resident, said she has chosen the lock-in price option on heating oil for the last two years.

"Last year was a bad year (to lock in). This year looks like a good year," she said.

Whether because of the shrinking value of the American dollar, the conflict between the Turkey military and Kurdish soldiers on the oil-rich Iraq border, tropical storms hindering oil production in Mexico or cuts in the Federal Interest Rate, the price of crude oil has been pushing $100 a barrel this week. It hit a high of $96 early Thursday morning before settling close to $94 at the end of the day. And as crude goes, so goes heating oil - to abnormally high prices. Smith was at a loss to explain the rising oil prices. He explained that the situations in Turkey and Mexico may have had an impact, but wasn't sure they were directly responsible for the high crude prices.

"There's a ton of factors. Who knows what's driving the market?... I wish I had the answers, but I don't," he said.

As for projecting the price of heating oil in the coming months, he was equally as uncertain.

"Some people have told me the weather's going to be warmer (in the winter). Who knows?" he said. "If the weather doesn't get real cold, the price would come down."

He said the wholesale price of heating oil was about $2 per gallon in August and has been rising steadily since. From Wednesday to Thursday of this week, the wholesale price jumped seven cents, from $2.48 to $2.55 a gallon, he said.

To aid low-income New Hampshire families, the Department of Health and Human Services has initially allocated $11.6 million in heating assistance to the Low Income Heating Assistance Program. They will disperse another $4 million later in the winter.

Congresswoman Carol Shea-Porter, D-NH, voted for a $500 million increase to LIHEAP earlier in the year; the House is currently negotiating with the Senate over the proposed funding increase.

"The cost of home heating oil keeps going up," Shea-Porter said in a statement. "LIHEAP funding for this year has not been finalized yet, but I'm going to keep fighting to increase the LIHEAP funding to New Hampshire."

The average family will pay about $400 more on heating oil compared to last year.

Straub, the South Berwick resident, said she was unfazed by the sharp rise of heating oil.

"I'm used to it going way up and way down. I go with the flow," she said.

To save money on heating oil, the U.S. government-aligned Energy Information Administration recommends installing proper insulation around hot water heaters, caulking and weather-stripping windows and doors to seal out cold air, installing a programmable thermostat and reducing temperature settings on thermostats when leaving the house.


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Chipmunk Whisperer wrote:

QUOTE:
The New York Times has insider information on New England temperatures this winter? :huh:

Now isn't that something. They know that it usually gets cold and it snows here.

You call that 'insider information'? Halucinating again, aren't you?

wildman wrote:

QUOTE:
Chipmunk Whisperer wrote:

QUOTE:
The New York Times has insider information on New England temperatures this winter? :huh:

Now isn't that something. They know that it usually gets cold and it snows here. You call that 'insider information'? Halucinating again, aren't you?

It snows in Florida.

What month will The New York Times record ice first covering Lake Winnipesaukee this year? February?

BTW: A guy who cut in line at a gas station in China got killed by those waiting to fill up before their prices went up. Again. A second man was killed elsewhere in China because of the price of gas.

QUOTE:

China's problem is self-inflicted. After three decades of economic reforms, Beijing still sets one-third of prices, including the price of electric power, gasoline and cooking oil. But that clashes with the free-market reality of China's oil refiners, which must pay record-high prices for crude on the world market.
http://www.kansascity.com/438/story/343944.html

What the above quote means is that "price controls" and a "planned economy" don't work. China has increased oil prices to reduce demand, ignoring the market forces that the rest of the world has to live with.

http://www.nh.gov/oep/index.htm This link gives you the State Energy Department webpage where you can find in lower right the weekly average price for heating fuels. Right now State average for #2 home heating oil is $2.91 and kerosene is $3.40.

Interesting program on WGBH TV (PBS) tonight. Interviewing a major Boston area fuel oil dealer who predicts he will be out of business in ten years. Continuing escalation in petroleum prices will cause large residential shift to natural gas. Probably feasible in Boston metro area but what will folks do up here in the sticks of NH?
And what will fuel this continuing price escalation? Well one example is India's marketing of a four passenger car for $2500. That means families will buy them and replace the more energy efficient motorbikes and scooters that most families use. This will put more strain on world oil supplies as demand in India soars. Same in China and other far east nations whose goods flood Wal-Mart and other stores. That is where the big growth is, billions of people striving for the same dream as we did in the US after WWII.
I guess people in areas where there is no access to natural gas will have to investigate propane or other fuels. Lots of changes coming in the next decade. But do you hear our nation's leaders talking about them, preparing us, offering alternatives? I sure don't. All I hear them talking about is spending more and taxing more.

I remember in high school reading a book which talked about serious energy issues if China and India developed like us. It focused on agriculture. Our agricultural system heavily relies upon oil, to grow and get the products to market. At the time it took 9 calories of energy to produce 1 calorie of food. The author's point was we were pushing India and China to develop agriculture like us and the world's energy demands would outstrip supply. We are efficient at getting incredible amounts of food per acre. The efficiency they had was less per acre but the energy usage was more efficient.

The author missed industialization of those developing countries and how that would also create huge demands on energy.

There are some candidates for President that are talking energy independance. I would like to see more encouragement through federal and local tax incentives. As OC points out, NH law allows property tax incentives but many towns don't offer them. The federal tax incentives run out this year. The hybrid car incentives were tied to a fixed number for each model which meant the tax break for popular cars ran out fast while others may still qualify for the break.

I recall at the school meeting a couple of years ago someone asked the architect about LEED certification for the proposed middle schools. It was said to be too expensive and the pay off too long to be feasible. They said a ground geothermal system would take about 10 years to pay back.

dnf wrote:

QUOTE:
"...I would like to see more encouragement through federal and local tax incentives..."

You mean different than the one that Congress made to enhance SUV sales a few years ago to placate Detroit lobbyists?

olcurmdgeon wrote:

QUOTE:
"...what will folks do up here in the sticks of NH...?"

I'd suggest that New Hampshire repeal the law that bans the sale of unvented kerosene heaters. They're cheap, extremely efficient, and heat up big rooms fast.

olcurmdgeon wrote:

QUOTE:
"...And what will fuel this continuing price escalation? Well one example is India's marketing of a four passenger car for $2500.

They outlawed the rickshaw twenty years ago but even prior, they sold inexpensive four passenger cars made in India. ("The Hindustan"—a copy of the Morris Minor 1000). 'Bet you didn't know that!

olcurmdgeon wrote:

QUOTE:
"...This will put more strain on world oil supplies as demand in India soars.

Yes, but the "falling dollar" means that the US will be selling anthracite on the world market (at $50/ton). China's energy requirements are so large, they have become an importer of coal.

olcurmdgeon wrote:

QUOTE:
"...That is where the big growth is, billions of people striving for the same dream as we did in the US after WWII.

After (and because of) WWII, we had tremendous manufacturing capability—but were cobbled by labor unions.

Now, technology, taxation, and low labor costs have moved those jobs overseas.

olcurmdgeon wrote:

QUOTE:
"...But do you hear our nation's leaders talking about them, preparing us, offering alternatives? I sure don't. All I hear them talking about is spending more and taxing more.

Depends on which leader: The President is keeping Middle East oil on the world market, and out of the hands of Totalitarians.

Congress is "Taxing Our Way to Prosperity".

Bad idea—and can't be done anyway.

Here is a link ot an interesting overview of using fuel oil for heating, somewhat dated (2006) but it also has other links. What I found interesting is the fact 8.1 million homes use fuel oil to heat and 6.3 million (78%) are in the Northeast. So as fuel oil keeps escalating in price, it is really a regional issue for the nation. Sounds like our NE Governors ought to be working on policy for this, doesn't it?
http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/heating_brochure/heatbro.htm

98 a barrel this morning. 100 on the horizon. We had best find some alternatives and fast!

AP
Oil Rises to Record Above $98 a Barrel
Wednesday November 7, 6:46 am ET
By George Jahn, Associated Press Writer
Oil Prices Rise to Record Above $98 a Barrel on Supply Worries, Oil Pipeline Attack

VIENNA, Austria (AP) -- Oil prices jumped above $98 a barrel Wednesday, a new record, amid expectations of declining U.S. supplies. The falling dollar and OPEC's apparent reluctance to pump more crude into the market also boosted prices.
Light, sweet crude for December delivery surge $1.25 to $97.95 a barrel by midday in Europe after earlier reaching as high as a record $98.62 in electronic trading on the New York Mercantile Exchange.

The contract hit a high of $97.10 Tuesday before closing at $96.70 a barrel, a record settlement 66 percent higher than the close on the first trading day of the year.

In London, Brent crude rose $1.31 to $94.57 a barrel on the ICE Futures exchange. A number of North Sea oil platforms were evacuated Tuesday ahead of expected severe weather, and BP PLC said it expects to shut production Thursday from its Valhall oil and gas field.

"The oil market sentiment remains bullish ... there is an overall upward trend toward the $100 level," said Victor Shum, energy analyst with Purvin & Gertz in Singapore. "Meanwhile, we can expect extreme volatility where on the one hand some traders will take profit while others will buy back positions."

Traders remain worried about whether supplies will be adequate to meet demand for heating fuel in the approaching Northern Hemisphere winter. News of an attack Monday on an oil pipeline in Yemen added to those concerns.

Figures to be released later Wednesday by the U.S. Energy Department's Energy Information Administration are expected to show crude supplies dropped last week. Analysts surveyed by Dow Jones Newswires predict, on average, that crude oil inventories fell by 1.6 million barrels.

"The price rise is really driven by expectations of drawdowns in crude oil and distillate stocks inventories in the U.S. inventory report," said Shum. "Some cold weather reports out of the U.S. and Europe serve as a reminder that winter is coming and that there are still supply concerns."

On Tuesday, the U.S. Department of Energy's EIA said oil stocks in the countries of the Organization for Economic Cooperation and Development are forecast to fall this winter, ending the year at the lowest level since January 2005.

In London, International Energy Agency head Nobuo Tanaka said he shared those concerns.

"We very much share the same opinions as the EIA (U.S. Energy Information Administration) on inventories heading into the fourth quarter -- the stocks situation continues to tighten," Tanaka told Dow Jones Newswires at the release in London of the agency's long-term energy outlook.

"Stocks need to be higher, something that is in the power of producer countries to address," Tanaka later told a news conference.

According to the Paris-based IEA, consumers and governments globally are currently doing too little to improve energy supply security and cut pollution. In its annual outlook for energy through 2030, the agency said the next 10 years are critical for governments globally to address these challenges as energy demand surges in the booming economies of China and India.

Continuing strong global oil demand and lower-than-expected output from countries outside the Organization of Petroleum Exporting Countries will put more reliance on supplies from OPEC and global inventories, the U.S.' EIA said in its short-term outlook.

Any reduction in oil inventories is likely due to a suspension of output at Mexico's state oil company Petroleos Mexicanos, a major crude exporter to the United States, which temporarily shut its ports last week due to severe weather.

The weak U.S. dollar, which fell to another new low against the euro Wednesday, is also lifting oil prices. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.

In Vienna, PVM Oil Associates noted another potential bullish factor, saying that -- despite record prices -- OPEC "has not shown any intention of increasing supplies on top of the 5,000,000 b/d (barrel a day) hike, which became effective at the beginning of this month."

Analysts also expect the EIA to report Wednesday that gasoline inventories rose by 200,000 barrels during the week ended Nov. 2, while supplies of distillates, which include heating oil and diesel fuel, fell by 500,000 barrels.

Heating oil futures added 2.75 cents to $2.6353 a gallon (3.8 liters) while gasoline prices rose 2.23 cents to $2.4573 a gallon. Natural gas futures rose 5.3 cents to $7.916 per 1,000 cubic feet.

The analysts expect that refinery use grew by 0.8 percentage point to 87 percent of capacity.

Chipmunk Whisperer wrote:

QUOTE:
The President is keeping Middle East oil on the world market, and out of the hands of Totalitarians.

Sure, and the moon is made of green cheese. The President is doing his best to make sure America bocomes a third world country. The sad thing is that he is succeeding.

Personally, I don't care about oil prices. My wood lot is big enough to keep me in fire wood for the rest of my life.