Rising oil prices spur heating concerns

loading...

With gasoline prices in Maine soaring to more than $3 a gallon, many motorists have considered ways in which their fuel consumption can be reduced.

It is conceivable, at least, to go a day or two without spending money on gas, perhaps by staying at home or by using alternate modes of transportation.

Heating oil, however, is another matter. When temperatures dip below freezing, doing without – even for an hour or two – is not really an option for those who depend on it to stay warm.

That’s why current oil prices, which are close to $66 a barrel, and the effects of Hurricane Katrina on Gulf Coast oil production have many Mainers alarmed about the approaching winter.

“Currently, the inventories are high,” Jamie Py, president of Maine Oil Dealers’ Association, said Tuesday of home-heating fuel.

There have been worries about possible rationing of oil, but Py said it is not happening. Supplies are more limited than normal, he said, but instead of rationing, oil wholesalers are “allocating” the amount of fuel they are giving gasoline retailers – a practice that is not uncommon.

That means that for each delivery, retailers can receive the same amount of fuel they received at this time last year, but no more, according to Py. With this self-imposed mechanism, retailers are prevented from hoarding fuel, he said, which would both drive prices up and further constrain supply.

“It is done so there won’t be run-ups or run-throughs,” Py said. “It happens [often] in the winter when we have a really cold snap.”

Oil prices on the New York Mercantile Exchange fell below $66 a barrel Tuesday as some calm returned to markets. The drop follows last week’s announcement that industrialized nations plan to supply the U.S. with 2 million barrels per day of crude oil, gasoline and diesel – an amount roughly equivalent to 10 percent of the nation’s daily demand.

Analysts said prices overall could rise again, however, because the long-term effects of Katrina’s damage are likely to make it difficult for refineries to meet the demand for gasoline and other products. The emergency supply of refined products coming from Europe will help, analysts said, but it will be more than a week before shipments begin to arrive and inventories of gasoline and heating oil will remain tight.

According to Py, some independent retailers that buy gasoline on the spot market rather than through a supply contract may have a hard time finding any to buy. As a result, whatever excess product is available on the spot market, he said, is going to be expensive.

Small heating oil companies also are being affected by the tight oil market, according to one local businessman.

Tim Dysart, vice president of Dysart’s Inc., said Tuesday that unlike his company, some smaller firms have stopped taking pre-buy orders because they have retail contracts to deliver all the oil they’ve been guaranteed for the winter by oil producers.

Rather than trying to secure more oil, he said, the smaller companies have decided not to offer any more pre-buy plans.

Dysart’s still is offering pre-buy plans through the end of September, according to the company executive. Its current price for such plans, he said, is $2.599 per gallon.

“We’ve locked those gallons in,” he said. “As long as our supplier guarantees us those gallons, that is [the price] they will be.”

A month ago, the average price for a gallon of home-heating oil in Maine was $2.15, according to MaineEnergyInfo.com, a Web site maintained by the state’s Maine Energy Resources Council. A year ago, the average price was $1.60.

Beth Nagusky, director of the Maine Office for Energy Independence and Security, said Tuesday that some state residents may face a “life or death situation” this winter because of the leap in oil prices. The higher prices simply are too high for many Mainers to afford them, she said.

“They already are, for some people, and [federal] fuel assistance is not going up,” she said.

Each year, the federal government releases money to be used to help qualifying citizens pay their home-heating fuel bills. As long as prices soar and federal assistance stays flat, Nagusky said, low-income Mainers will find it increasingly difficult to keep their furnaces going.

“We think we might see more people applying” for fuel-assistance funds, she said.

While oil pipelines, import terminals and some refineries put out of commission by the hurricane have restarted operations, four damaged Gulf Coast refineries look likely to remain closed for weeks and possibly months, analysts said, taking with them more than 5 percent of U.S. production capacity. Almost 70 percent of the region’s normal oil production and half its natural gas output remains shut down, according to the U.S. Minerals Management Service, which says activity is recovering slowly.

As for the supply of heating oil this winter, Py said it is difficult to predict what might happen because it is still a bit early for home deliveries to begin.

“I haven’t heard anything about heating oil,” he said.

Because of the current demand for gasoline, oil refineries in operation may continue with gasoline production beyond the end of September, when many switch to producing home-heating fuel, he said. If this happens, heating-fuel supplies may be lower than anticipated and prices could increase further, he said.

“It certainly could put pressure to raise prices [more],” Py said.

Concerns about supply are not the reason some heating-oil companies have discontinued their pre-buy plans, according to Py. The availability of such plans usually decreases after Labor Day, he said, and the cost of insurance for guaranteeing a price has gone up significantly.

The Associated Press contributed to this report.