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
As levels of crude in conventional wells around the world continue to drop, governments and oil companies alike are searching for the “next generation” of petroleum resources. Perhaps the most promising non-conventional petroleum resource is tar sands, examined and discussed here at the Zone in last Tuesday’s post. Another source of petroleum that could become increasingly important over the next ten years, especially in the United States, is oil shale.
Oil shale is in the news today, as the New York Times, the Wall Street Journal, and other prominent news outlets reported on the Bush Administration’s finalizing of guidelines to allow for oil shale excavation in the Western U.S. Yesterday, the U.S. Bureau of Land Management announced the official opening of almost 3 million acres of public land, located in Utah, Colorado, and Wyoming, to future oil shale mining. The opening of the lands follows a two-year government ban on oil shale excavation that Congress allowed to expire two months ago along with the ban on offshore oil drilling.
The term “oil shale” refers to sedimentary rocks that contain deposits of kerogen, a fossil fuel that can be processed to make synthetic crude oil or “shale oil.” Oil shales are usually removed from the surface or dug up from underground, crushed into smaller pieces, and put through process called retorting, in which the rock is heated to extremely high temperatures (650-700ºF), to separate the kerogen from other materials in the rock in liquid form. The kerogen, in the form of shale oil, is then refined into other petroleum products.
Although today’s announcement about opening oil shale lands is just a preliminary step, environmental groups have already raised objection. Their first objection appears to be the sudden announcement of the new guidelines that eliminated any opportunity for public debate or opposition. From the New York Times:
“The Bush administration is maintaining an unlawful position by amending these resource management plans without providing the public with an opportunity to have their decisions administratively appealed,” said Melissa Thrailkill, a staff attorney for the Center for Biological Diversity. “We are considering all our options. That includes legal action in federal court.”
Environmental activists also oppose oil shale mining because of the environmentally destructive nature of oil shale processing. The tremendous heat used to separate the petroleum in the shale from other minerals requires huge amounts of energy. Large quantities of water are also required for processing shale (several barrels of water are needed to produce one barrel of shale oil), and water is in short supply in the arid region designated by the Bureau of Land Management’s announcement. Furthermore, the production of shale oil emits large amounts of carbon dioxide, a greenhouse gas–several times more than does the processing of conventional crude oil.
The Green River Formation oil shale deposits. Image:ostseis.anl.gov
For now, the relatively high expense and difficult processing of oil shale keeps it from becoming a major source of commercially-produced oil. In the U.S., the mining and processing of oil shales has slowed to a crawl, thanks to the current deep dive in oil prices. When the current global recession ends and oil prices shoot back up, however, the search for new sources of oil (especially in the U.S.) will resume with increased vigor. According to the government website ostseis.anl.gov, the three-state Green River Formation contains 800 billion barrels of recoverable crude oil in the form of oil shale deposits. With that enormous potential resource, an emergence of oil shale as the dominant domestic source of oil in the U.S. could very well take place in the next decade.
The price for a barrel of crude touched a 22-month low of $54.13 early this morning before inching upward to $55.85 as of 9:54 am eastern time. Heating oil was also up a fraction, to $1.80 per gallon at 9:57 am.
The stock market appears to be the main motivator for the small upswing in oil prices, mostly due to the lack of new supply and demand data today. The Dow Jones Industrial Average was up a fraction of a per cent to 8329.17 as of 9:50 am.
HEAT USA price experts confirmed a small drop in retail heating oil prices this morning, and predicted a small price increase tomorrow.
HEAT USA Price Report Today’s average heating oil price per gallon: DOWN $0.03 to $0.04 Morning projection (for Wednesday’s average price per gallon): UP $0.01
Not even pirates hijacking oil tankers could rescue falling oil prices today, after news of an official recession in Japan and reports of big demand reductions from China’s biggest oil company drove the price of crude to a 21-month low of $54.95 a barrel. The price of heating oil dropped less sharply, losing 2% to settle at $1.79 a gallon.
HEAT USA price experts were pleased to see the upward trends of the morning reversed, and expect a drop in tomorrow’s retail prices similar to the decline seen this morning.
HEAT USA Price Report Evening projection (for Tuesday’s average price per gallon): DOWN $0.04
For weeks now, The HEAT Zone has been applauding falling oil prices, as they mean immediate savings for heating oil consumers. Everyone enjoys paying less for their heating oil and gasoline, especially during tough financial times like Americans are facing today.
But there is a downside to falling oil prices. As the price of oil drops, people and companies become less and less interested in reducing our dependence on foreign oil and increasing energy efficiency. Without high fuel prices cutting into profit margins and pocketbooks, driving less and using less electricity become decreasingly urgent goals. And the worst part is, while oil is cheap now, it will certainly go back up in the next year or two and will eventually reach new record-high prices. Unless we change our consumption habits and find cleaner, domestically-available energy sources before then, the same economic, environmental, and national security problems associated with oil dependence will return with greater intensity.
President-Elect Obama spoke about this issue in his 60 Minutes interview last night (fast forward to the 9:40 mark to hear the question and answer):
So how exactly can we as a nation re-ignite the urgency of increasing energy efficiency and reducing our dependence on foreign oil? The Wall Street Journal posted a story today that asks precisely that question and collects responses from six high-profile thinkers in the energy sector. Highlights are below. Read the full story here.
Representative Roscoe G. Bartlett (R) of Maryland: Cut back the work week. Employers should cut back to a four-day work week, and expand telecommuting. This will reduce traffic and auto pollution, decrease employer overhead, and increase employee fuel and time savings.
James Woolsey, former CIA director: Mandate the manufacture of alternative-fuel vehicles. The federal government should use the leverage provided by the possible bailout of the U.S. auto industry to demand the manufacture of more vehicles that are capable or running on electricity, biodiesel, or ethanol. More “flex-fuel” cars on the road soon means U.S. oil consumption could drop off quickly.
Amy Myers, Educator and Director of Rice University’s Energy Program: Increase federal taxes on gasoline. If the federal government raises gasoline taxes to create a “price floor” for gas, the economic pressures to curb energy consumption re-appear, and the private sector has a strong incentive to increase efficiency and develop new non-petroleum-based energy technologies.
Amory Lovins, Chairman and Chief Scientist at Rocky Mountain Institute: Force increased vehicle efficiency with a “feebate” system. Charge additional fees on cars and trucks that are the least fuel-efficient in their size class, and use the collected fees to provide rebates for the most fuel-efficient vehicles in their size class. This will give consumers extra financial incentive to purchase fuel-efficient vehicles, increasing demand for those vehicles with auto manufacturers.
Phil Sharp, President, Resources of the Future: Institute a cap-and-trade system. The government should assign negative monetary values to carbon emissions, allowing companies to trade or sell their emissions credits or debits and giving the biggest polluters unprecedented economic incentive to clean up their acts.
Colder-than-average temperatures are expected across the Eastern US this week, a factor that has many investors betting on an increase in fuel consumption. “‘We finally have cold weather, which is going to lead to increased heating-oil demand,’ said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago,” in an article on Bloomberg.com. Bloomberg also reported that a tanker carrying Saudi crude for the Saudi Arabian government company Aramco was hijacked by pirates off of the coast of Kenya.
The anticipated demand increase brought about by colder weather and supply disruption caused by African pirates have combined to put crude and heating oil prices on a slightly upward track this morning. Both crude and heating oil prices were up about 2% on NYMEX as of 10:05 eastern time this morning.
HEAT USA price experts confirmed a moderate price drop in retail heating oil today, and predicted a small increase in prices tomorrow.
HEAT USA Price Report Today’s average heating oil price per gallon: DOWN $0.03 to $0.04 Morning projection (for Tuesday’s average price per gallon): UP $0.01
After a slight lift in morning trading, both crude and heating oil prices dropped by about 2% today. The cause of the price decline appears to be residual reactions to news that the European Union is officially experiencing a recession coupled with new data that showed retail sales in the US at their lowest levels in years.
From CNBC.com: “’With a steady stream of news chronicling worsening economic performance, the downward momentum will only be slowed with great difficulty,’” Mike Fitzpatrick, vice president at MF Global, said in a research note.”
HEAT USA Price experts expected a moderate drop in Monday’s retail heating oil prices to match today’s moderate drop on the commodities market.
HEAT USA Price Report Evening Projection (for Monday’s average price per gallon): DOWN $0.04
