After big down and up swings, crude and heating oil prices finished an abbreviated trading day very close to their starting points. Crude oil ended the day up 1¢ and heating oil gained a fraction of a penny to hold its opening price. Buzz surrounding tomorrow’s OPEC meeting in Cairo and the slim chance of a new production cut did little to support prices.
HEAT USA price experts adjusted their morning projection for Monday’s prices to reflect an overall flat day on the markets, expecting no change from this morning’s prices.
HEAT USA Price Report Evening projection (for Monday’s average retail heating oil price per gallon): NO CHANGE
As crude prices fell again this morning, all eyes were on OPEC in anticipation of their hastily convened meeting in Cairo tomorrow. Oil ministers from several member nations have downplayed expectations of production cuts coming out of the meeting, saying the summit would only involve data analysis and planning and that production reductions would not be instituted until their December 17th meeting in Oran, Algeria.
OPEC, whose member nations produce over 40 per cent of the world’s oil, has been the dominant presence in the global oil market since the late 1970s (see the Zone blog, “Who is OPEC?”). The cartel is currently facing its biggest challenge in 20 years, beset by dwindling worldwide demand for oil, plummeting prices, and shrinking revenue. The simple solution for OPEC would be to cut production by a big enough margin to catch up with rapid demand destruction currently underway in the U.S. and other large oil-consuming nations. However, conflicting interests and priorities among the OPEC member nations make that solution much more complex than it sounds.
King Abdullah of Saudi Arabia
Today’s OPEC is divided into two factions, sometimes referred to a “price hawks” and “price doves”—the “hawks” consistently push for drastic steps to control prices, while the “doves” tend to take a more measured stance, often favoring restrained action to allow for market forces exert more influence on prices. The foremost hawks are Venezuela and Iran, while Saudi Arabia, the world’s largest oil producing nation, defines the position of the doves. As the Zone post “Falling Oil Prices Sap Power of Anti-U.S. Regimes” discussed, traditional hawks Venezuela and Iran are currently facing dire economic consequences as a result of plummeting oil prices. As a result, representatives for both nations have made their positions clear: OPEC must continue to cut production, and the cuts must be deep and come soon. Saudi Arabia, on the other hand, is wealthy enough to withstand much lower oil prices before its economy begins to suffer, and has established itself as the advocate of patience and restraint when it comes to production reduction.
Over the last two months, the cartel has decided to cut overall
Iranian President Ahmadinajad
production by 2 million barrels a day. Price-watchers view this announced action with a skeptical eye, as the OPEC production-reduction catch-22 looms larger than ever: although overall production cuts will eventually lead to higher prices, OPEC member nations still face reduced short-term income as a result of their reduced oil output. This quandary often leads to non-compliance within the cartel, especially by smaller and more oil-dependent economies; countries such as Venezuela and Nigeria might agree to cut their own production by 5%, only to institute production cuts of 1% behind OPEC’s back in an attempt to maximize short-term revenue. This fundamental reality only gives more-compliant nations like Saudi Arabia more reason to scale back on future production cuts, as an article in the New York Times explains:
…some producers are dragging their feet. OPEC’s president, Chakib Khelil, said the group needed to see how well producers were complying with their prior commitments to pare supplies before agreeing to a new cut. The group is scheduled to meet again in Algeria next month.
There are also international political forces dividing OPEC. Leading dove Saudi Arabia is a key U.S. ally, and has a great interest in America’s investment in peace and political stability in the Middle East. Saudi Arabia’s allegiance to and dependence on the U.S. as a economic and military ally give reason for it to use its considerable power within OPEC to undermine the interests of anti-U.S. regimes in Iran and Venezuela. Furthermore, as a Sunni Muslim nation, Saudi Arabia has its own disagreements with Shiite Muslim Iran, its neighbor across the Persian Gulf. An article in the International Herald-Tribune explains:
Saudi Arabia is a close U.S. ally in the Middle East, and is eager to see concerted Washington backing for peace efforts in the region.
One way of winning new support from the incoming administration of U.S. President-elect Barack Obama would be by tacitly working to undercut two of Washington’s most strident foes, Venezuela and Iran. It would not be an onerous job for the Sunni Muslim Saudis, who have no great affection for Shiite Iran.
“Saudi Arabia is playing ball with the U.S.,” said [Fadel Gheit, managing director of oil and gas research at Oppenheimer & Co. in New York]. “It is going to punish Venezuela. It is going to punish Russia. It is also going to curtail Iran.”
Mr. Gheit mentions Russia, not a member of OPEC, as an oil-producing nation with hostile sentiments toward the U.S. Although its outsider status gives Russia no official influence on OPEC policy, recent statements by Russian government officials have shown a keen interest in working in cooperation with OPEC to raise oil prices, with future membership a desirable possibility.
Whatever the results of the OPEC summits tomorrow and on December 17th, complete cooperation within the cartel will be required to make any real headway in supporting oil prices–a goal that, as the situation for oil producers becomes more dire, will be increasingly difficult to attain.
Crude and heating oil prices both fell by about 3% from Wednesday’s closing prices this morning on NYMEX. The market was closed yesterday for the Thanksgiving holiday. This weekend’s “unofficial” OPEC meeting in Cairo appears to be the largest influence on oil prices today. Oil ministers from several member nations have said the meeting will be only be consultory, and it is unlikely any production cuts will come out of Cairo. “Here we will prepare some data and maybe the final decision will be in Algeria,” Iranian Oil minister, Gholam Hossein Nozari said, quoted in a BBC News article, referring to the group’s next official meeting on December 17th in Algeria.
Some analysts expect another major production cut to be announced at the Algeria meeting, augmenting the 2 million-barrel-per day reduction instituted over the last two months. The market seems to be skeptical of another production cut’s effectiveness at raising prices, however, as global oil demand continues to decline, most acutely in the the U.S., the world’s biggest oil consumer. Recently-released EIA data showed that U.S. crude and gasoline stocks had increased again last week and that gasoline demand continued to fall rapidly.
HEAT USA price experts confirmed a moderate increase in retail prices from Wednesday, and expected a small reduction by Monday.
HEAT USA Price Report Today’s average retail heating oil price per gallon: UP $0.04 Morning projection (for Monday’s average price per gallon): DOWN $0.03
This morning’s news of China’s large interest rate cut continued to inspire optimism throughout the trading day today, leading crude and heating oil to 8% and 4% price gains, respectively. The long-term prospect of China’s rate cut stimulating economic growth and oil demand outweighed news of huge inventory increases in U.S. stockpiles of crude oil, gasoline, and distillates (which includes heating oil). Russia’s intention to cooperate with OPEC to lower prices with the possibility of cutting its own production also helped to boost oil prices on NYMEX today.
HEAT USA price experts confirmed this morning’s projection for a moderate retail price increase, and noted that, due to the Thanksgiving holiday, end-of-day prices will apply to Thursday and Friday of this week.
HEAT USA Price Report Evening Projection (for Thursday’s/Friday’s average price per gallon): UP $0.04
HEAT USA is proud to unveil the first episode of HEAT T.V.–the video series aimed at providing heating oil consumers with interesting and useful information and instruction. The video is up on YouTube (watch it below), and will be available in the HEAT USA member center soon.
In October, we posted a blog here at the Zone that offered tips to homeowners on how to winterize on a shoestring budget. The first episode of HEAT T.V. takes one tip from that posting and shows how to go about weatherstripping windows to save money on heating costs. Check out the video below and good luck with your weatherstripping!
Oil prices are climbing this morning, stimulated by the Chinese government’s fourth interest rate cut in the last ten weeks–an attempt to re-ignite economic growth in the country. Crude and heating oil were both up 2% as of 9:45 am eastern time.
Analysts believe the interest cuts could stimulate fuel demand in China, the world’s fastest-growing economy. From Bloomberg.com:
“The combined fiscal and now monetary push will help to avoid a hard landing in China, and thus remains supportive of its oil-demand growth,” said Harry Tchilinguirian, senior oil analyst at BNP Paribas SA in London.
Russia also did its part to drive oil prices up, announcing that it will cooperate with OPEC in the near future in efforts to boost falling prices. The announcement did not specify the nature of Russian cooperation, but a production cut is a definite possibility. From Bloomberg.com:
“Russia is being more cooperative like they were about 10 years ago and it would be bullish if they cut output along with OPEC,” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “It’s already expected OPEC will cut, but the unknown is the depth of it.”
HEAT USA price experts confirmed a sizable decrease in retail heating oil prices today, and noted that, despite this morning’s price gains, a forthcoming report on U.S. petroleum stockpiles could drive prices down later today.
HEAT USA Price Report Today’s average retail heating oil price per gallon: DOWN $0.07 to $0.08 Morning projection (for Thursday’s/Friday’s price per gallon): UP $0.04 to $0.05
Crude and heating oil prices sunk today, with crude dropping 6% to settle below $51 a barrel. Heating oil fell by about 4% to end the day at $1.71 per gallon. The news of a shrinking GDP in the United States that seemed to have little effect on oil prices early this morning caught up to the markets and stoked fears of spiraling energy demand as a result of a global recession as the day went on.
Inventory numbers for petroleum products are scheduled to be released tomorrow morning, and anticipation of increased stockpiles of crude, gasoline, and distillates appears to have added additional drag on today’s prices.
HEAT USA price experts noted the extreme volatility that continues to rule the oil market and announced a larger-than-expected drop in retail heating oil prices tomorrow.
HEAT USA Price Report Evening projection (for Wednesday’s average price per gallon): DOWN $0.07 to $0.08
Oil prices fell this morning, losing ground gained in yesterday’s big rally sparked by the U.S. government’s bailout of Citigroup. Crude oil was down just over 4% to $52.19 a barrel and heating oil had dropped by 3% to $1.74 a gallon as of 10:00 am eastern time. The drop-offs are somewhat surprising, considering new economic data that showed the American economy shrank by a no-more-than-expected 0.5% last quarter. The new data combined with a plan for freeing up consumer credit and mortgage securities announced by the Federal Reserve helped to boost stocks and currency markets.
HEAT USA price experts confirmed a large increase in retail prices over yesterday morning, a result of yesterday’s surge in oil prices that capped the first consecutive two-day gain in crude prices since mid-September. Current trends point to mid-sized to large price decreases in heating oil tomorrow.
HEAT USA Price Report Today’s average retail heating oil price per gallon: UP $0.08 to $0.10 Morning projection (for Wednesday’s average price per gallon): DOWN $0.04
Crude and heating oil prices continued to climb rapidly after today’s noontime retail price increase, gaining almost 10% and 5% on the day, respectively.
The U.S. government’s bailout of Citigroup provided a shot of optimism to the stock market today, contributing to oil’s rise. Expectations of another production cut by OPEC or 1 million barrels per day provided the major stimulus to oil prices after “OPEC president Chakib Khelil said a further output cut of more than 1 million barrels per day would be necessary to support the oil market in its current state,” according to CNBC.com.
HEAT USA price experts predicted an increase of a dime over this morning’s retail heating oil prices.
HEAT USA Price Report Evening projection for Tuesday’s average price per gallon: UP $0.10
The surging markets lifted the market price of heating oil quickly enough to stimulate a midday price change today. Heating oil has gained almost 5% (8¢) today on NYMEX, bringing average retail prices up 7-8 cents as of 12:29 pm eastern time.
HEAT USA Price Report
MIDDAY PRICE CHANGE: UP $0.07 to $0.08
The U.S. government’s rescue of struggling financial institution Citigroup gave a boost to the stock market this morning, sending the Dow Jones Average up 0.6% to 8113.25 as of 9:44 am eastern time. A cautiously resurgent stock market helped to lift oil prices, with crude and heating oil up 3% and 2%, respectively. Anticipation of a second major production cut by OPEC (which will meet informally in Cairo on November 29th) before the end of the year also contributed to slowly climbing oil prices.
Forbes.com noted that falling temperatures and a rising stock market in Europe may have helped lift oil prices as well.
HEAT USA price experts confirmed the small increase in retail heating oil prices from last Friday, and expected a larger increase in tomorrow’s prices as a result of rising market prices today.
HEAT USA Price Report Today’s average heating oil price per gallon: UP $0.02 to $0.03 Morning projection (for Tuesday’s average price per gallon): UP $0.05
Crude oil gained about 1% today to settle at $49.93 a barrel and heating oil gained over 1% to close $0.02 higher at $1.70. The slight recovery in oil prices following yesterday’s 7% plunge in the price of crude followed the stock market, which posted its own recovery with the Dow Jones Average closing 3% up at 7894.45.
Breaking news that President-Elect Barack Obama will choose New York Federal Reserve President Timothy Geithner as his Treasury Secretary sparked a huge jump in stocks minutes before the closing bell. Uncertainty remained the only sure bet for oil prices, however, leading analyst Stephen Schork to quip in an Associated Press article, “At this point, all we can say with any degree of confidence is that crude oil … will not trade below zero.”
HEAT USA price experts predicted a small increase in Monday’s retail prices as a result of today’s market increase.
HEAT USA Price Report
Evening projection (for Monday’s average price per gallon): UP $0.02 to $0.03
Crude oil returned to the sub-$50 level this morning, at $49.90 a barrel as of 9:41 am eastern time. Heating oil also dropped quickly this morning, at $1.70 a gallon at 9:46 am, after hitting $1.85 in overnight trading; however, its current price still represents a 2% increase over yesterday’s close.
Etreme volatility continued to reign over the markets today, as the Dow Jonbes average inched upward following yesterday’s steep decline. Demand reduction fears continued to drive down the price of oil, but news of new OPEC output reductions stimulated some buying.
HEAT USA price expers confimed the expected drop in retail heating oil prices this morning, and prediced very small price increases for Monday.
HEAT USA Price Report Today’s average heating oil price per gallon: DOWN $0.07 to $0.08 Morning projection (for Monday’s average price per gallon): UP $0.02
Crude oil fell 7% to close at $49.62 a barrel today, its lowest price since May 2005. Heating oil prices lost over 4% to close at $1.69 a gallon. Plummeting oil prices are strong signal that the global recession is here and steadily getting worse.
A New York Times article emphasized that there is no end of the economic crisis and resulting oil price fallout in sight, citing some experts who are predicting that the price of crude could reach as low as $30 a barrel next year.
HEAT USA price experts announced a larger-than-expected drop in retail prices tomorrow as a result of the historic price plunge on today’s market.
HEAT USA Price Report Evening projection (for Friday’s average price per gallon): DOWN $0.07 to $0.08
Mayor Michael Bloomberg announced in a press conference yesterday (watch a video clip on NY1’s website) that New York City officials are increasing their inspections of heating oil trucks as the weather turns colder. Bloomberg emphasized that no city or government can control heating oil prices, and stated that his administration’s goal is to ensure that New Yorkers “get every drop of oil they pay for.” The full press release explains that all heating oil trucks are required to undergo annual inspections of their metering equipment at the Consumer Affairs inspection facility in Greenpoint, Brooklyn. Once the trucks’ meters have passed inspection, they are tagged with a seal indicating compliance with city regulations. Surprise inspections are conducted in the field by Consumer Affairs officials, who pull over delivery trucks and make sure their inspection seals are intact and up-to-date.
The New York Post noted that fewer trucks have been flagged for having inaccurate metering equipment this year than last (64 this year, compared to 95 last year). This statistic was cited in the press release as proof of higher levels of compliance by heating oil companies this year (80% this year compared to 73% last year). The press release also mentioned that the metering regulations, which limit the amount of air allowed to pass through the pipes of heating oil delivery trucks along with the oil, were tightened during the 2008 fiscal year.
The announcement seemed to provide two bits of reassuring news to New York heating oil consumers: the city is vigilantly enforcing tougher regulations on oil delivery, and increasing numbers of dealers are following the rules.
Crude oil prices plunged 3% this morning to just a few cents above the $50 a barrel mark. Heating oil followed, losing about 3% to $1.70 per gallon. New economic data showing skyrocketing unemployment and a significant drop in consumer prices worsened market pessimism amid worldwide recession and shrinking energy demand.
“Weakness in stocks reflects weakness in the economy at the moment looking forward, but I think the general trend in oil is lower anyway,” said Sucden’s head of research Michael Davies.”It’s a bit of a chicken or egg thing. Everything’s moving together, it’s hard to say what’s leading,” Davies said.
HEAT USA price experts confirmed the expected increase in average retail prices for heating oil this morning, and predicted moderate-to-large declines in tomorrow’s prices following the market slide.
HEAT USA Price Report Today’s average heating oil price per gallon: UP $0.005 to $0.01 Morning projection (for Friday’s average price per gallon): DOWN $0.05
The price of crude fell about 2% today to $53.15 a barrel as of 3:51 pm eastern time. The price for a gallon of heating oil stayed relatively flat, gaining about half a cent but holding at $1.76 on NYMEX. The divergence in price changes is an effect of today’s data on US inventories that showed crude and gasoline stockpiles rose more than expected while distillates (used to make diesel and heating oil) dropped after predictions that they would increase.
HEAT USA price experts explained that the decrease in distillate stockpiles was most likely a result of heating oil users around the country filling their tanks in anticipation of cold weather. They expect a fractional to small increase in prices tomorrow.
HEAT USA Price Report Evening Projection (for Thursday’s average price per gallon): UP $0.005 to $0.01
On October 8th of this year, the Energy Information Administration (EIA) released its short-term energy outlook, warning of substantially higher heating and energy costs this winter. That same day, HEAT This Week applauded the EIA’s cautious estimates, but questioned their accuracy. In the October 8th newsletter, (“What to Expect this Winter,” read the entire article on The Heat Zone blog) HEAT USA president Andrew Heaney explained that the EIA’s report ignored important economic evidence that crude oil and other energy prices would continue to decline sharply for several months, at least.
It looks like the EIA has come around to HEAT USA’s point of view. On November 12th, the agency released its November Short Term Energy Outlook, which essentially reversed the position set out in the October report. The EIA summarized its new position in the report’s top bullet point:
The current U.S. and global economic downturn has led to a decrease in global energy demand and a rapid and substantial reduction in crude oil and other energy prices. As a result, projections for both energy demand and prices are considerably lower than last month’s Outlook.
The new report offers good news for consumers of all petroleum products: heating oil, gasoline, propane, and natural gas users will all pay less for their fuels this winter than they did in 2007. As for heating oil, an Associated Press article specified that heating oil users are expected to pay $1,694 for oil this season, a 13 per cent decline from last winter, and almost $700 less than the EIA’s October prediction. The report forecasts the average heating oil price per gallon this winter will be $2.75, a 56-cent reduction from last month’s report and 17 per cent lower than last winter’s average price. In addition to plummeting worldwide energy demand, consistent increases in crude and heating oil inventories in the US have also contributed to lower retail prices, according to a Reuters article that noted heating oil inventories had risen by 1.3 million barrels in the last week.
The news appears to be consistent throughout the Northeastern states. According to the Scranton Times-Tribune, heating oil prices in Pennsylvania have fallen 15 per cent in the last month. The Boston Herald reported the average price in Massachusetts to be $2.85, 31 cents lower than November of 2007.
Of course, because the EIA’s reports come out every month, December could bring yet another drastic change in the short-term energy outlook, but that is unlikely. Because low oil prices are primarily a product of dwindling energy demand around the world, major price increases would have to be brought about by a resurgence in energy demand. While energy demand will almost certainly return to the early 2008 levels that caused record-high oil prices, it will not happen in a matter of days or weeks, but months or years. Heating oil prices will continue to fluctuate, but consumers throughout the Northeast can look forward to lower prices than last winter for at least the next two or three months.
NOTE: This article first appeared in the November 14th, 2008 edition of the HEAT This Week email newsletter.
Crude and heating oil prices remained near their Tuesday closing prices on NYMEX this morning. Traders and analysts appear to be holding their collective breath until the release of new inventory numbers at 10:35 am eastern time. Crude and heating oil prices were up 1% and 2%, respectively, as of 9:31 am.
HEAT USA price experts announced a decrease in retail heating oil prices from yesterday that is a penny smaller than expected, and anticipated a small gain in tomorrow’s prices.
HEAT USA Price Report Today’s average heating oil price per gallon: DOWN $0.03 Morning projection (for Thursday’s average price per gallon): DOWN $0.02
Both crude and heating oil prices dropped slightly on NYMEX today, losing about 1% each. Ever-present worries about low global energy demand continued be the dominant emotions on the commodities markets. From Bloomberg.com:
“The bottom line is that you don’t have anything solid out there to support a sustained rally,” said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. “The financial crisis has led to economic weakness and falling demand in the U.S. The problems in the U.S. are now spreading to China and other developing countries.”
Analysts also predicted tomorrow’s energy report from the Energy Department would include news of U.S. crude stockpiles increasing by about 1 million barrels.
HEAT USA price experts were pleased to report a moderate decline in tomorrow’s retail prices, despite only incremental decreases in market prices.
HEAT USA Price Report Evening projection (for Wednesday’s average price per gallon): DOWN $0.04
