Wednesday, October 20, 2004

Heating Costs for This Winter,

A friend of mine working on his Ph.D., who has a newborn and lives in a mobile trailer, asked me a few weeks back about whether or not to accept a utility company offer to "budget in" his energy costs - or lock them in at a fixed monthly rate for a year.

I unhesitatingly told him that yes he should do so and that I already had.

When he asked me how much I thought prices would go up I estimated at about 25% nationally on average. He seemed surprised and mentioned how he'd seen a figure of about 15-20% on the upper end. However I assured him between falling inventories and metereological reports that 25% was a modest prediction rather than an upper band.

Since then I've seen a WaPo article that quoted estimates for price increases in the North East USA to be up potentially 28% but I thought that was low.

Now we see this:

Crude futures are now 81 per cent more expensive than a year ago, while the average American residential price of heating oil is $1.99 per gallon countrywide, up 60.5 cents from a year ago, according to U.S. government statistics.

Crude would need to climb to $80 per barrel in order to reach the all-time pinnacle, in inflation-adjusted terms, set February 1981.

Buying was triggered Wednesday by an Energy Department report showing a 1.9 million barrel drop in distillate fuel last week, bringing U.S. inventories to 119 million barrels, or 9.5 per cent below year ago levels.

The decline came amid falling imports of distillate and in spite of increased production from U.S. refiners, meaning domestic demand growth outstripped supply growth.

Daily distillate demand for the week ending Oct. 15 was 4.2 million barrels - a level that analysts said is more typical of the dead of winter. One explanation is that with prices high all summer many heating oil distributors delayed making their winter supply purchases, creating pent-up demand.

"This is the time of the year when you're usually building inventories," said Tom Bentz, a trader at BNP Paribas Futures in New York. "It seems we probably peaked on inventories a month or two early. The weather is getting colder, so it's unlikely that stocks are going to be able to build from here."

The Energy Department also reported that crude oil stocks grew by 1.2 million barrels to 279.4 million barrels, or 3.7 per cent below last year.

So if you haven't locked in your heating costs and you still can, do so. Whatever price they charge you now, it's probably not going to be as bad as when the market fully prices in this winter - which by all signs to the weatherwise and official metereological forecasts is going to be a chilly one on the North American continent. Gonna get real cold out there.


At October 21, 2004 at 8:27 PM, Anonymous Anonymous said...

I'm in Massachusetts. I just filled up and it cost almost $500! Good lord!

Adam Stanhope

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