9/14/08 Oil-slicked floodwater surrounds an oil pump in High Island, Texas. Photo: Getty Images/Boston.com

9/27/08 A gas pump in Nashville, TN, an area hit hard by the fuel shortage. Photo: AP Photo/Mark Humphrey

The dual blows to the Gulf Coast dealt by Hurricanes Gustav and Ike on September 1st and September 12th, respectively, led to a serious shortage of gasoline that continues today.  Southern Georgia (including the Atlanta Metro area), Central Tennessee and North Carolina have been the hardest-hit regions, with thousands of drivers facing long lines at the few local gas stations that have fuel to sell.

The one-two punch of the biggest hurricanes of the season crippled the supply chains to affected regions at their sources.  As hurricane Gustav approached the Gulf Coast, 32 of the 33 refineries in the region shut down operations.  After Gustav had passed, the refineries that were in working order began to get back online, a process that takes seven to ten days to complete.  Unluckily, Hurricane Ike made landfall in Texas and pounded the Houston area about ten days later, resulting in refineries that were about to reach full capacity after the first storm having to shut down again.  A week after Hurricane Ike, Gulf Coast output was about 50% lower than normal: as of September 19, Gulf refineries produced 1.8 million barrels of gasoline per day, down from 3 million per day in late August, according to the Asheville Citizen-Times (Asheville, NC).

The supply interruptions caused by the storms were exacerbated by a strained supply chain: a single pipeline is the main source of gasoline for eight Southeastern states.  The Colonial Pipeline  (the yellow line in the above diagram) runs 5,519 miles from Houston to New York, and was forced to reduce its capacity due to hurricane-related power outages for several days.  Even though the pipeline returned to full capacity operation soon after the storms, hindered refinery production meant that minimal quantities of gasoline were flowing through the pipeline for two weeks, which in turn led to empty storage tanks at gas stations and frustrated drivers throughout the Southeast.

According to an article in the Atlanta Journal-Constitution, gasoline supply is increasing, and the Department of Energy has released 4 million barrels of crude form the Strategic Petroleum Reserve since September 8th.  The shortage is still being felt throughout the Southeast, due in large part to a frenzied atmosphere where long lines at the pump and gasoline hoarding have become daily occurrences.  The end of the shortage is in sight, but it may be another two weeks before gas supplies return to completely normal levels in the affected areas.

Could the Northeast be the next region to experience a gas shortage?  In short, no.  The Northeast relies on regional refineries as well as overseas sources to supply their gas and is therefore not dependent on fuel carried through a pipeline from thousands of miles away.  While turmoil in the national economy and market fluctuations affect daily prices of gasoline and heating oil, supply concerns and price spikes caused by hurricanes are two things that residents of the Northeast don’t have to worry about.

Crude oil and heating oil prices are both up about 3% for the day, matching gains on the stock market following its largest one-day point drop in history.

HEAT USA price experts are not seeing any midday price changes by heating oil dealers, but expect a modest price increase tomorrow morning.

Monday’s nosedive in the stock market and crude oil prices led to a significant decline in heating oil prices that translated to an average drop of $0.17 per gallon this morning.

However, stocks have rallied this morning and crude oil prices have followed suit, which could lead to a midday hike of the price of heating oil.  Stay with The Heat Zone for updates later today.

Heating Oil prices followed the trend of the day, declining sharply as the stock market and the price of crude oil plunged on news of the bailout bill failing to pass the House of Representatives.

HEAT USA pricing expert Mark Kohan predicted an average drop of $0.20 per gallon in wholesale prices by tomorrow.

After days of negotiations and hours of heated debate, the US House of Representatives rejected the financial bailout bill by a vote of 228 to 205.  The bill, championed by the Bush Administration as a necessary fix for the nation’s struggling economy, would have led to the $700 billion purchase of debt products from failed or failing financial institutions.

The news of the bill’s failure had an immediate effect on already-slipping stock and commodities markets: the Dow Jones fell 6.98% and crude oil fell almost $11 (a 10% decline) to just over $96 a barrel at close.

Dismayed members of Congress offered comments that mirrored the market news: the bill’s failure only worsened the economic crisis.  “Today is the decision day. If we defeat this bill today, it will be a very bad day for the financial sector of the American economy and the people who will feel the pain are not the top bankers and top corporate executives but average Americans,” said Barney Frank (D-MA) in an article on CNNmoney.com.

As previously reported on The Heat Zone, the slowing national economy is bad news for the nation as a whole, but there is a silver lining: the situation will most likely continue to drive down the price of heating oil.

Commodities prices fell along with the stock market in early trading on Monday.  As the details of an eleventh-hour deal on the government bailout bill for the financial sector emerged, traders seemed to doubt that the bill, if it does pass a Monday vote in Congress, would provide adequate measures to avert a forthcoming economic slowdown.  A Bloomberg.com article quoted David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney, on the state of the markets: “Even if the Troubled Asset Rescue Plan is passed, that doesn’t necessarily mean there aren’t any obstacles on the road to economic recovery.  There are worries about the outlook for the international economy.”

As of 9:30 Monday morning, crude oil had fallen over $5 from its Friday closing price and hovered around the $101 per barrel mark.  Heating oil dropped as well, down almost 5% from its Friday closing price.

Crude oil prices continued to drop this afternoon as the business community held its collective breath and lawmakers continued to squabble over the scope and structure of the potential bailout of the financial sector.

The bailout question continued to dominate the oil market, and is generally seen as the most important factor in determining price changes.  The situation was summed up by Charles Perry, president of Perry Management, an energy-consulting firm in a MarketWatch article, published this afternoon: “The perception is: bailout equals improved economy, which equals more driving and increased oil demand and thus higher prices,” he said. But “no bailout means the opposite.”

Heating oil customers know that the price of heating oil changes every day, even every hour.  With so many different forces influencing the price of heating oil–the price of crude, weather, location, and others–the price per gallon of heating oil can go up or down by a full fifteen or twenty cents in one day.  Market price for heating oil is currently 75 cents higher per gallon than one year ago, but a full dollar lower than two months ago.  This price volatility has become a reality of the modern heating oil business, and is the main reason that locked-in pricing is a risky choice.

The basic danger of locking in your heating oil price for any amount of time is that if the price of oil goes down, you are stuck paying a higher price.  Obviously, the inverse situation (being lucky enough to lock in a low price before prices take off on a long-term rise) is also possible, but there are other factors to consider.  In addition to tying you to a price, locked-in pricing agreements tie you to a contract–an agreement that, as soon as you sign on the dotted line, reduces your leverage in dealing directly with your heating oil dealer.  The price-lock contract guarantees you as a customer to the heating oil dealer for a certain amount of time (usually one year).  The contract eliminates your option of “voting with your feet”–seeking out a new dealer –if you are dissatisfied for any reason.  Of course you can get out of your fixed-price contract, but it will cost you a cancellation fee of several hundred dollars.  Furthermore, if your dealer has you on contract, he will be less concerned about losing you as a customer, which makes you a lower priority than non-contract customers when it comes to service and deliveries.  If a dealer is late for a service appointment with a non-contract customer, he risks that customer ordering from a different dealer for her next delivery.  If a dealer is late for a service appointment with a contract customer, he essentially risks nothing.

An article in today’s Ridgefield Press (Ridgefield, CT) shows an example of bad buying practices resulting in unnecessarily higher costs.  The Ridgefield school board made some unfortunate buying decisions that led to their paying an extra $250,000 to heat Ridgefield schools this winter.  Their loss was a direct result of this summer’s price spike–although the board had laid out a plan for regular buys dictated by time and not price-per-gallon, the record-high prices caused great concern that prices would continue to go up.  Shaken by this concern, the board abandoned their buying plan and made a large purchase at the near-peak price in late May.

Mark Kohan, a pricing expert and Membership Services Director at HEAT USA knows of a few HEAT members who made the very same mistake:  “When prices were so high earlier this year, we had a couple members leave the co-op to sign contracts that locked them in at $4.699 and $4.899 per gallon, plus the cost of service.  They were afraid that prices would keep going up.”  Now that prices have come down by about 70 cents per gallon, he says, “those same members are choosing to pay the $300 or $400 cancellation fees to re-join HEAT USA.  They looked at paying $4.89 per gallon all season and realized that, even after paying the cancellation fees, they would save money with the co-op.”

The best option for heating oil consumers is to rely on the assistance of pricing experts and consumer advocates provided by buying co-operatives like HEAT USA.  Membership in a large buying organization means professionals empowered with unique market information are watching prices on your behalf every day.  In addition, membership puts the full influence of tens of thousands of other consumers behind you, making you a high-value customer that dealers want to keep happy.

After hopes of a government bailout deal being finalized buoyed stock and oil prices yesterday, last night’s news of bailout negotiations falling apart in Washington led to a steep drop in market prices this morning.  Crude oil prices dropped from near $108 per barrel to below $105 in morning trading.  The latest bad news in the financial sector, the seizing of Washington Mutual by federal regulars, also drove stocks down this morning.  While the country’s economic state continues to worsen, HEAT USA members can take note of oil prices dropping and have something to smile about (at least for today).

After a record breaking one-day gain on Monday, a big drop-off on Tuesday, and a small loss on Wednesday, Crude oil prices rose modestly on Thursday, ending just shy of  $108 a barrel, as reported by CNNmoney and wsj.com.  Stocks rose and the dollar strengthened as traders showed optimism that the $700 billion government bailout of the financial market was close to completion.  Declining demand, supply interruptions and lower-than-expected stockpiles of crude and gasoline were all overshadowed by the question: how and when will the government remedy the current economic crisis?  Heating oil also rose slightly, up 2 cents to $3.05 per gallon.

Yesterday afternoon’s post encouraged heating oil consumers who may need help paying their energy bills to apply to the government assistance program (LIHEAP).  The post also mentioned pending legislation that would double LIHEAP’s funding.

Today, Heat Zone is happy to report that the pending legislation has passed both houses of congress as part of a budget bill for the 2009 financial year.  Even though the country is in the midst of a financial crisis and the federal government is running an enormous deficit, congressional leaders recognized the crucial importance of LIHEAP, and made the doubling of its funding a priority.  President Bush’s budget plan included a $500 million cut in LIHEAP funding, but the increased funding written in by legislators ($5.1 billion in total funds) managed to double funding over last year.  In an article on crainsnewyork.com, Sen. Charles Schumer (D-NY) said he expected President Bush to sign the bill despite his previous plan to cut LIHEAP funding.

The increased funding is great news, but some state officials (like Maine Housing Director Dale McCormick, as quoted on fosters.com) are saying that it will still fall short of what is needed to provide help to every family that needs it.  So if you think you might need assistance, call 1-866-674-6327 (1-866-NRG-NEAR) today.

HEAT President Andrew Heaney feels the increases might be too little, too late: “The real need began last winter–Congress just completely missed it, and a lot of people got badly hurt. And even though prices have come down significantly, they are still enormously high by historical standards; the need is still tremendous. Still, it needs to be recognized that it is very good news that Congress has increased funding and ignored President Bush’s plan to cut funds. I urge all HEAT USA members to investigate if they are eligible, and make sure to apply as early as possible- the funds are dispersed on a first-come, first-served basis.”

Some approximate breakdowns of total increased LIHEAP funds, by state:
New York: $500 million
New Hampshire: $34 million
Maine: $47 million
Connecticut: $95 million
Pennsylvania: $194 million

High unemployment, low temperatures, and higher energy costs will hit families hard all over the country this winter. According to the National Energy Assistance Directors’ Association (NEADA), the average cost of energy for one household in a one-year period is expected to rise to $1,152 this year, up from $986 in 2007 (a 17% increase), as reported in an article at Stateline.org. HEAT USA members and other residents of the Northeast who might have trouble paying heating oil, electricity, and/or gas bills this heating season are encouraged to apply for government assistance right away.

People who believe they might need government assistance to pay their home energy bills should call the National Energy Assistance Referral (NEAR) project hotline at 1-866-674-6327 (1-866-NRG-NEAR), or send an email including their city, county and state to energyassistance@ncat.org . Operators will help applicants determine if they are eligible for the Low Income Home Energy Assistance Program (LIHEAP) in their state. Eligibility qualifications are based on the number of persons per household, income level, area of residence, and other more complex factors, so the best way to determine if you and your family are eligible for assistance is to call the toll-free number, 1-866-674-6327. Beneficiaries of LIHEAP program (“grantees”) would receive assistance from the federal government in the form of direct payments to their energy providers (including heating oil suppliers).

Although leaders in congress from both parties have included the largest-ever LIHEAP funding package ($5.1 billion) in the fiscal year 2009 budget bill, economic woes and a bloated deficit may force stiff reductions in funding, reducing the number of families who would receive LIHEAP benefits. So if you think you will need help paying your energy bills this winter, increase your chances of receiving assistance by calling 1-866-674-6327 today.

The New York Times reported this morning that the Commodity Futures Trading Commission has issued subpoenas in its investigation of possible illicit manipulations that may have caused the unprecedented jump in crude oil prices on Monday. The subpoenas were issued for trading records from several oil trading companies involved in trades on the crude oil contract for October delivery, which closed on Monday at $120.92 after posting its record gain. In addition to subpoenaing records, the CFTC can also compel sworn testimony from individuals involved in the crude oil market. The Heat Zone will publish the details of the subpoenas and any testimonies as they become available.

The U.S. Commodity Futures Trading Commission (CFTC) announced yesterday that it would investigate crude oil futures prices on the New York Mercantile Exchange (NYMEX). The CFTC’s announcement came on the heels of the largest-ever one-day gain in crude oil prices, which had clearly drawn the regulatory agency’s attention. The agency is “closely monitoring” the historic price spike to make sure no illegal moves caused the increase. “We are working closely with NYMEX compliance staff to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain,” Acting Chairman Walter Lukken said in an article on Bloomberg.com.

In today’s trading, crude oil prices dropped, settling at $108 per barrel after reaching $120 on Monday. Experts speculated that a rebounding dollar and persistent demand concerns helped to drive crude prices down. Overall predictions for crude prices in the coming weeks were unclear, as scores of factors could have significant affects in the near future, including fluctuations in the value of the dollar, political unrest in Nigeria, the forthcoming details of the government’s $700 billion market bailout plan, and Russia and Venezuela’s plans for joint military maneuvers.

Keep clicking on the Heat Zone to see how the CFTC’s investigation and the roller coaster ride of crude oil prices play out.

This summer two separate bills, H.R. 6321 and H.R. 6473, were introduced to the House of Representatives. Both bills, if they became law, would provide relief from high energy prices and supply problems for residents of the Northeast.

H.R. 6321 (also called the “HEATR bill of 2008″), introduced by Rep. John McHugh (R-NY), would provide a tax credit to individuals and families to the tune of $500 or 33% of one year’s energy costs. The credit would be limited to households making less than $100,000 per year.

H.R. 6473, introduced by Rep. Paul Hoades (D-NH) would require the Secretary of Energy to sell off heating oil from the Northeast Home Heating Oil Reserve under specific circumstances: (1) if a major disruption in energy supply occurs, and (2) if the retail price of heating oil reaches $4.00 per gallon

Both of these bills are still in the first phase (”introduction”) of the legislative process, and may not even move beyond the committee phase to be voted on by congress. If one or both of the bills did become law, however, they would form a nice safety net under HEAT USA members and others who rely on heating oil to keep warm during the winter. The Heat Zone will keep track of both bills when and if they move through the legislative process.

We have heard a lot about the recent troubles in the financial markets. The investment banking industry was hit hard last week when two of its biggest and most prestigious firms folded: Lehman Brothers filed for bankruptcy and Merrill Lynch sold itself for pennies on the dollar to Bank of America. Market players and other stockholders had very bad days, and financial analysts spread doom and gloom throughout the media landscape.

What does the grave economic news mean for heating oil consumers? There is a good chance that it means lower prices this winter, even if crude oil and heating oil prices go up over the next few weeks.

As of this afternoon, crude oil and heating oil prices were both on the rise, mostly because investors who have lost faith in the stock market are seeking more stable investments such as gold and crude oil. The good news is that these price increases on the national market are expected to be short-term. The collapse of investment banks is one symptom of a the larger slowdown we’re seeing in our economy, and a sluggish economy usually means reduced demand for energy and, in turn, lower prices. “The economic slowdown in the U.S. [and] Europe hasn’t gotten into China, India much, but at some point you have to presume it will,” Deputy Executive Director of the International Energy Agency William Ramsay said today, as quoted today in an article on Bloomberg.com.

The bottom line? Sit tight and wait out the current instability of stock and commodities markets. Long-term trends point to lower heating oil prices than last winter. Check back in with the Heat Zone blog for updates as they happen.

In the face of increasingly dire economic news at home and abroad, oil fell today to $104 a barrel. This is excellent news for the heating oil consumer as the heating season really begins in only 60 days or so.

The big question is will this slide last. Our bet is that it will- for a while, but long term we still think consumers should act as though this is only a temporary reprieve. Nothing fundamental has changed about the oil industry- demand is still growing albeit at a slower pace- and production as limited as it already is, might be cut by OPEC at any point.

There is much to smile about when it comes to the price of energy these days (who would think we would say that about $100+ oil?), but also much to be wary of.

With Hurricane Gustav no longer looking like a Katrina-esque disaster, the oil markets continue their march downward. The change in psychology is just astounding. When you consider that in the last month we have seen the invasion of Georgia and a major Hurricane in the Gulf, it is just incredible that prices are headed south.

Will prices continue to slide, even below $100?- they just might- but even if they do it is no time to let out a sigh of relief. Its time to use this opportunity to use the money saved to make the investments to get more energy efficient.

The HEAT Zone took a little break to take in the summer weather, and smell the roses. But now it’s back to work! We’re working on making sure you have everything you need to know about what’s happening in the heating oil marketplace.

We hope you all had a good summer- It was a very cool in most parts of the country, so we’re hoping its a warm winter, and that oil prices crash as a result!