In July of this year, the price for a barrel of crude oil hit $147, its all-time high. As of this morning, crude oil was selling for less than $43 a barrel, a 70% decrease in just five months. Start with one of the biggest price swings in history, add an emerging global recession, and you’ve got the perfect recipe for complete unpredictability for the future of oil prices. Most analysts agree that the plunge in oil prices is closely tied to the recession, which means that when the global economy starts to recover, oil demand will shoot back up, taking prices up with it. Of course, no one knows when the recession will wind down, and the recession could get worse before it gets better. Merrill Lynch has predicted that the price of crude could drop below $25 a barrel in 2009 if the recession spreads to China. With so much uncertainty in the oil markets, what’s a heating oil consumer to do? How do we plan for a future where heating oil could cost anywhere from $2 to $5 a gallon? As always, HEAT This Week will continue to survey the news and provide our readers with as much information as possible on what to expect.

For this edition, HEAT This Week decided to look to Andrew Heaney, president of HEAT USA and a 15-year veteran of the heating oil industry, for some answers about where crude and heating oil prices will be in the next months, years, and decades, as well as some other questions relating to the energy sector. The following Q&A session was the result:

HEAT This Week: Over the last four months, the price of crude oil has hit its highest price ever ($147 per barrel, in July) and and its lowest price in over three years ($42.65 per barrel this week). Have you ever seen such huge price swings in such a short period of time?

Andrew Heaney: No, it is unprecedented. We’re living through an historic time right now and the activity in the energy markets is breathtaking. When I started at HEAT, it was a huge deal if the price of heating oil changed a penny overnight. Now it can change 15 cents in an hour. The good news is that for now at least, I think we can expect some volatility, but much lower prices for the next year or two.

HTW: Most analysts and business news organizations agree that the main cause of falling oil prices has been decreasing demand resulting from the global recession. Are there any other major causes you can point to?

AH: The drop in demand is a big factor, but much of the run-up in prices over the last year had to do with a perceived supply/demand crunch that was coming- not one that had arrived. So a lot of the increase in prices had to do with psychology and perception. In my view, the threat of a supply/demand crunch in the future is very real, and likely in fact, but not right now, or even the next few years. The market has finally bowed to that reality, and the result has been nothing short of a price crash, which is clearly very good news for consumers.

HTW: Since the price of oil has dropped so quickly, could it return to its peak price just as quickly? Where do you see the price of oil going in the next year or two?

AH: If there is one thing I know after watching the energy markets for 15 years, it is that I know very little. But my considered opinion based on observations here at HEAT and conversations I’ve had with some very smart energy analysts is that no, we are not going to see that peak price again in the next three years. I think the price of oil will hover between $30 and $70 for the next couple of years, with a good amount of volatility due to geopolitical events, not economic ones.

HTW: What is your prediction for the price of crude oil 20 and 50 years from now?

AH: I don’t know! However, I do believe that as our global economy develops, crude oil and its refined byproducts will increasingly be phased out by developed countries, and even countries like China and India. I believe that the recent price spikes combined with global efforts to combat climate change mean that crude consumption in 30 years will be flat to lower, so short term I am bearish, medium term bullish and long term bearish.

HTW: It’s been widely reported that low oil prices have reduced interest and investment in alternative energy technologies like electric cars and wind- and solar-generated electricity. Do you think developing such technologies is still possible during times of cheap oil?

AH: Yes but it is much more difficult. This is the major downside to the drop in prices, just as it was the only silver lining during the price spike. I think the price crash will be very discouraging to investment in alternative technologies unfortunately. That being said, I think it is very possible that there could be a game-changing technology that emerges in the next five to ten years. My guess would be it will be in battery technology- which will make things like solar and wind truly competitive. It could also come from the field of biotechnology, where right now they’re working on creating microorganisms that will eat garbage, corn stalks, wood chips, etc. and turn them into fuel. If someone comes up with the right bug, or the right enzyme, or the right battery, things will change quickly.

HTW: What policies do you expect President-Elect Barack Obama to enact when he takes office to reduce America’s dependence on foreign oil?

The biggest new source of energy available to America is energy that we don’t use- so I think conservation is key. There are three big areas of energy consumption in our country- transportation, power generation and heating. I think the President and the Congress could do a lot to motivate every sector of American society to conserve- higher CAFE standards for cars and trucks, new power plants, smart grid technology, carbon cap and trade–there are lots of places for them to help reduce U.S. demand.

HTW: A recent Reuters article reported that many Americans are continuing to take steps to conserve heat and energy in their homes, despite lower energy costs. Do you think this may be the beginning of an era of conservation in the U.S.?

AH: I think something very significant took place in the American psyche over the last few years. Paying that much money for everyday necessities was just nauseating. You don’t forget that. So I do think we are in the midst of something new- electric cars, efficient heating systems, new technology, etc. If American consumers are going to buy something right now, they are going to buy things that promise to save them money. I think they will be very interested in products that offer a fast return on their investment, like efficient heating systems and cars.

HTW: The HEAT Zone blog has listed many ways to conserve heat at home. Are there one or two easy and inexpensive measures you would recommend as the most important?

AH: The best thing you can do is install digital, programmable thermostats in your home. They will save you a ton of money by matching your energy usage to your lifestyle: low temp when you’re asleep or at work, warm when you’re at home. And the second thing is heat loss–go through your house and check your windows and doors for drafts, plug holes in your basement that might be letting cold air in, insulate your hot water pipes, etc. It’s easy to do, it’s cheap, and it gives you a big savings on your energy bill.

NOTE: This article first appeared in the HEAT This Week Newsletter on December 5, 2008

Everyone knows that it’s a waste of energy to leave the TV on when you leave the room.  But did you know that even if your TV is “off,” it may still be sucking up electricity and running up your power bill?  The culprit in this electrical cat burglary is standby mode–the so-called “power vampire” that is a part of almost every modern electrical appliance.  Standby mode exists to make re-starting appliance quicker and easier, but requires energy to do so.  Switching off your TV with your remote control means you can switch it back on without standing up, but it also means you’re paying precious dollars and cents in electric bills for that convenience.

Televisions, computer monitors, microwaves, DVD players, and cell phone chargers all suck power while not in use.  Studies have shown appliances on standby can account for 10% of one home’s total energy consumption.  The European Commission has estimated that Europeans waste $9 billion a year on standby electricity costs.  A UC Berkeley study showed that standby power can consume up to 26% of a tech-heavy California home’s energy.  The International Energy Agency even estimated that standby power consumption accounts for 1% of the world’s annual greenhouse gas emissions. (Source: WSJ.com)

Image: Associated Press

So the results are in: standby power is bad–it drives energy bills up and contributes to pollution.  So what’s the solution?  The inventors at the Spanish company Good for You, Good for the Planet believe they have it.  They have patented an algorithm that senses when an appliance is in standby mode, and shuts it off completely.  Appliance manufacturers have already shown interest in the product, and a Spanish hotel chain has begun testing a prototype power strip, called “100% Off,” in its guest rooms.  This simple solution could take a huge bite out of worldwide energy waste, and take us one step closer to efficient and green world.

Until the device (or other devices like it) is widely available, try serving as your own “100% Off” mechanism.  When you’re done watching TV, walk up to the set and click the on/off button, so that no lights are on anywhere on the TV.  Unplug your cellphone chargers when you’re not using them.  Shut down your computer instead of leaving it in sleep mode.  This changes may seem insignificant, but try it for a month and then check your electric bill.  You may be pleasantly surprised at the results.

Image: Mirko Ilic/The Wall Street Journal

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):

Watch CBS Videos Online

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.

New York State from space Image: WorldMapsOnline.com

New York Attorney General Andrew Cuomo’s office issued a press release yesterday to announce the creation of the Oil Efficiency Pilot Program.  The program will provide financial assistance to needy families in New York State to help upgrade old heating systems and increase home energy efficiency.  The program will receive $1.9 million in funding as part of a $75 million settlement that Cuomo secured last year from American Electric Power, the nation’s largest energy company.  The company was fined for its coal-fueled power plants that were operating in violation of the federal Clean Air Act.

The pilot program, as part of the comprehensive HeatSmart NY program, is expected to extend assistance to 500 of the neediest 3 million New York families who rely on oil for heat.  The Attorney General’s Office also touted the program’s environmental benefits, saying it will help to reduce greenhouse gas and other polluting emissions.

New York residents who are interested the program should call 1-877-NYSMART.

At HEAT USA, a common question we receive from members and non-members alike is, “What’s the price of heating oil today?” As we always explain, the price of heating oil depends where you live, who your supplier is, whether or not you are a member of HEAT, and many other big-picture factors. What are those factors, and how do they lead to higher or lower retail prices for heating oil? It is a simple question with a complicated answer. We at HEAT This Week try to provide simple and straightforward explanations for why the price for a gallon of heating oil changes so rapidly. We have compiled a list of three factors that influence the price of heating oil in an attempt to help consumers understand how they could pay $2.90 a gallon one day and $3.10 the next.

Crude Oil. Also known as petroleum, crude oil is the main ingredient in heating oil (also know as number 2 fuel oil), as well as kerosene, jet fuel, and gasoline. Petroleum is also used to manufacture other essential materials, including lubricating oils, plastics, and asphalt. With so many uses, it’s no wonder that crude oil is the fuel of the world economy. Add the fact that crude oil is increasingly difficult to get out of the ground to consistently high demand for the product, and you’ve got one hot commodity! Crude oil is the most sought-after commodity on the New York Mercantile Exchange (NYMEX), and often affects the price of other commodities. So if the demand for crude oil suddenly increases because Americans start driving more or China purchases 100 new airplanes, the price increases. Generally, as goes the price of crude, so follows the price of heating oil.

Worldwide energy supply and demand. Since crude oil is a crucial part of nearly every energy source on the planet, its market price is very closely tied to the global market’s demand for energy. As explained in the October 17 edition of HEAT This Week (“The Stock Market, Heating Oil, and You”), the current economic slowdown affecting economies around the world has weighed down demand for energy everywhere. Americans are driving less and Chinese factories are manufacturing less, putting crude oil in low demand. When the stock market begins to perform more strongly (which some experts say will happen soon), it will be a signal of the global slowdown ending and energy demand returning. At that point, demand for crude oil will surge, lifting its market price and, in turn, lifting the price of heating oil as well.

Profit margins. As with every other good that is bought and sold, petroleum passes through many hands before it arrives at your home as heating oil.

Huge multinational corporations extract crude oil from the ground and ship it to refineries they own nearby to make heating oil. The heating oil is then shipped to local distribution centers called “racks.” At the racks, the heating oil is sold to local retailers, who fill up their tanker trucks and then deliver the oil to homeowners. The two transfers of ownership (multinational producers to retailers and retailers to consumers) include taking of profit from the sale of the oil. If the market value of heating oil is $2 a gallon on the day the retailer buys from the producer, the producer might charge $2.15 a gallon in order to make a profit. The retailer then adds on his own profit margin to the price he charges the consumer, making the retail price $2.50 a gallon. Profit margins are an important part of capitalism, so long as they are fair and justified by market forces. However, heating oil producers and retailers sometimes take advantage of customers and raise the price of the oil to prices that are disproportionate to the market value.

For example, heating oil retailers may raise their profit margins on heating oil during the winter, because they know consumers are more willing to pay higher prices when it’s cold outside. So in the winter, retailers often raise their prices, even if the market price for heating oil is going down. This allows retailers to maximize their profits during heating season so that they may continue to do business when demand is extremely low during the spring and summer. Retailers will argue that this is a fair practice, but some view it as exploiting heating oil consumers.

This tendency of retailers to maximize their profit margins led heating oil collectives like HEAT USA to provide price protection to their members, which compels retailers to agree to a specific number of cents per gallon in profit.

The three factors above are the basic forces that affect the price you pay for heating oil from the moment crude oil is pumped out of the ground to the moment the delivery truck fills up your tank. Crude oil availability and market price, worldwide demand for energy, and profit margins taken along the supply chain are all determined by hundreds of secondary factors that change every day, making the price for a gallon of heating oil change every day as well. With so many interrelated forces guiding the price of heating oil, along with the global economy’s first major crisis of this century, heating oil prices will continue to swing up and down. And whether the trend of the day or week is low or high, flat or sharp, the only thing heating oil consumers can surely bet on is uncertainty.

This article first appeared in the November 7, 2008 edition of the HEAT This Week email newsletter

The election of Barack Obama as the 44th president of the United States was a historic event celebrated by millions in the US and abroad.  Now that the celebrations have ended, discussions have turned to the enormous challenges Obama will face when he takes the nation’s highest office in January of 2009.  Given the urgency of the current economic crisis engulfing the US and the rest of the world, economic recovery will undoubtedly be his first priority as president.  After that, Mr. Obama will have to choose which of the numerous other problems to focus on next.  According to author Michael T. Klare’s article on alternet.org, it is critical that President Obama make energy policy his next priority.

According to Klare, worldwide demand for oil will continue to climb at increasingly rapid rates (the current demand contraction being a short-term trend), especially in the developing world, led by China and India.  While demand is rising, Klare claims, supply will be dwindling: “It used to be thought that the depletion rate of [conventional oil] fields was about 4% to 5% a year, but…the International Energy Agency (IEA)…is expected to report that the decline rate is closer to 9%, an astonishingly high figure.”  Climbing demand and falling production would lead to a world where the US would have to compete with China and India for increasingly scarce oil supplies, as the developing nations of Asia are predicted to out-consume the US by 2030.

Klare posits that Obama should face these impending problems head-on.  He suggests a massive government initiative to place our country on a new energy track.  First, he argues, the President should initiate conservation programs and increase development of public transport to curb oil demand.  He should then support development of green technologies, set goals for usage of energy from green sources, and reorder government priorities so that using our military to protect our oil supplies gets bumped to the bottom of the list.

While an Obama Administration will certainly face serious energy-related challenes, his candidacy has provided hope for progress in the energy realm.  He often spoke of his ambitious goals of creating 5 million “green collar” jobs and reducing American dependence on foreign oil on the campaign trail.  How much action President Obama delivers on those campaign promises remains to be seen.  But if he is true to his word on reforming US energy policy and infrastructure, and is as dedicated as he claims to be to finding a comprehensive, long-term solution to America’s energy issues, then crisis of energy and oil twenty years from now could very well be avoided.

Every three years, the Shell Oil company releases “Scenarios”: predictions for the future of energy resources and consumption.  As an oil company, Shell obviously has a lot at stake when it comes to the future of energy, so their scenarios are well-researched and evolve along with new developments in energy technology and legislation.

Shell’s most recent scenarios begin with three “hard truths” about global trends in energy consumption: demand for energy is surging, supplies will struggle to keep up with energy demand, and the stresses on our environment are increasing.  With these basic facts in mind, Shell created two possible scenarios for the development of energy production and consumption to the year 2050, titled “Scramble” and “Blueprint.”  The scenarios represent two possible responses to the three “hard truths,” and offer predictions about which energy resources will be utilized, how government policy will affect energy consumption and environmental impact, and how the population at large will respond to coming problems.

Scramble
The more pessimistic view of the next 42 years.  This scenario is marked by a lack of cooperation and a lack of foresight on the part of world governments.  In “Scramble,” ever-increasing energy demand (especially in developing nations) gives expanded power and international influence to governments of oil-producing nations.  Oil-consuming countries attempt to address rapidly increasing energy demand with supply side action, as actions to reduce domestic demand are viewed as hinderances to economic growth.  Bilateral agreements between oil producing nations and the biggest oil consuming nations are the most common method of securing long-term energy supply.  The largest energy consuming countries look to increased coal use as a fast and relatively cheap way to expand energy supply.  Interest in nuclear power as a supply solution also re-emerges, but is hampered by relatively high amounts of time and investment required to expand nuclear energy generation.  As coal use increases, so does use of first-generation biofuels (corn-based ethanol, for example).  However, food shortages and increased carbon emissions associated with clear cutting to grow first generation biofuels drive demand for second-generation biofuels (such as algae or woody plant products).  Meanwhile, the effects of climate change begin to manifest themselves in the form of extreme weather events and environmental destruction.  Governments previously focused on securing long-term energy resources are forced to enact extreme measures to soften the harsh effects of climate change.  By 2050, non-carbon fuels account for a much larger share of worldwide energy resources, and governments devote a larger portion of their resources to mitigating climate change.  These positive changes come more slowly and at a greater economic cost than if they had been instituted sooner, with more attention paid to long-term energy and environmental solutions.

Blueprint
The “Blueprint” scenario is the preferable of the two, marked by cooperation, foresight, and incremental change.  The change in energy policy in “Blueprints” comes from the bottom up.  Citizen groups and local and regional governments institute progressive measures to curb their own energy consumption and reverse environmental damage.  Stirred to action by the political and economic successes of local and regional groups and governments in addressing energy issues, national governments begin to adopt similar measures.  In a notable difference from the “Scramble” scenario, the actions taken by national and local governments address both the supply and demand sides of rapidly increasing energy demand.  International cooperation on such issues builds a consistent and well-managed carbon trading system (currently referred to “cap-and-trade”) in which CO2 emitting companies are made to pay financial penalties for their emissions and non-polluting companies would receive credits for their clean practices.  Companies around the world buy, sell, and trade carbon credits, stimulating international trade and supporting national economies.  The US institutes stricter Corporate Average Fuel Economy (CAFE) standards on vehicles, helping to reduce carbon emissions and demand for auto fuel.  Oil-hungry developing nations (specifically China and India) participate in international carbon trading and emissions-capping programs in return for assurances of future investment and economic support from developed nations.  By 2050, the US and EU are using one-third less energy than they currently use today.  Steady progression toward energy efficiency worldwide makes solid economic development possible without substantial increases in energy consumption.

With so much uncertainty in the future of energy supply and demand and their effects on the environment, Shell’s scenarios provide two well-researched and well-explained possibilities of what our energy future looks like.  The scenarios are both encouraging and cautionary: hasty knee-jerk reactions to energy challenges could lead to economic and political strife and the best path to smooth and responsible transition to energy efficiency and balance begins with grassroots action.  However accurate the scenarios may or may not be, an engaged and interested world population could only improve the situation in the long run.

Complete descriptions of both scenarios as well as videos and question-and-answer sessions can be found on the Shell website.

In just 5 days, we will choose our next president. After a long and much-publicized campaign, many differences between Democrat Barack Obama and Republican John McCain have come to light. For this week’s newsletter, we thought it might be a good idea to speculate on what effect their policies might have on heating oil consumers. HEAT This Week undertook an investigation of both of the major candidates’ energy platforms, voting records, and public comments to discern what actions, if any, potential McCain or Obama administrations might take to support Americans who rely on heating oil.

Senator John McCain

Senator McCain has titled his energy platform the “Lexington Project,” (available on McCain’s campaign website) with the subtitle “An all of the above energy solution.” McCain’s overarching goal is “strategic oil independence by 2025,” leading him to name the plan after the place where America’s first battle for independence began, and places emphasis on using “all of the above” energy resources within America’s borders to achieve the goal of energy independence, including oil, nuclear, natural gas, and renewable sources such as wind and biofuels.

McCain’s first step towards increasing domestic energy production would be increased oil drilling in Alaska and offshore of the lower 48 states, as captured by the “Drill baby drill!” catchphrase that has become a popular chant at campaign rallies. The McCain campaign outlines this step in the first two sentences of his online energy plan: “The current federal moratorium on drilling in the Outer Continental Shelf stands in the way of energy exploration and production. John McCain believes it is time for the federal government to lift these restrictions and to put our own reserves to use.” In July of this year, McCain made a campaign stop in New Hampshire, where he addressed the press on the subject of oil dependency while standing in front of a heating oil truck. At the appearance, McCain acknowledged the plight of Americans struggling to pay for heating oil, but only spoke of a solution in general terms, referring back to his plan for increased domestic energy production: “We’ve got to address the beginning of the [heating oil chain]…including off-shore oil exploration, including nuclear power, including alternate forms of energy…” (source: npr.org. McCain’s plan to bring down oil prices by increasing domestic production, if successful, would most likely lead to reductions in heating oil prices as well. McCain has also proposed a federal program to build 30 nuclear power plants in the United States by 2030.

McCain’s energy platform also identifies speculation in the oil futures market as a major cause of runaway crude prices. Increased regulation of the oil markets is an increasingly popular idea–in July of this year, Senator Harry Reid (D-NV) introduced S. 3268, the Stop Excessive Energy Speculation Act of 2008. If it became law, the bill would tighten regulation of the commodities markets (specifically in the trading of petroleum products) and expand the oversight powers of the Commodity Futures Trading Commission. The bill has yet to be put to a vote in the House or the Senate, so Senator McCain’s views on the bill are not on record.

The McCain campaign has criticized Senator Obama’s energy plan, claiming that Obama’s platform includes a tax on heating oil. According to the nonpartisan website factcheck.org, these claims are questionable.
Several bills have moved through Congress in the last few years that would increase funding for or amend the qualification requirements of the Low Income Home Energy Assistance Program (LIHEAP). Most recently, H.R. 2638, the Disaster Relief and Recovery Supplemental Appropriation Act of 2008 (covered on The Heat Zone blog on September 25th), was signed into law last month, substantially increasing LIHEAP funding to states throughout the country. Senator McCain abstained from voting on H.R. 2638. In 2006, the senate passed S. 2320, which provided supplemental funding to LIHEAP for the 2006 fiscal year. Senator McCain voted Nay on S. 2320. According to a July 2008 report on National Public Radio, McCain voted against the 2006 LIHEAP funding bill because he believed its planned expenditures were irresponsible. McCain has indicated that he would support S. 3323, the Weatherization, Assistance, and Relief for Middle-Income Households Act of 2008, which would also increase financial support for LIHEAP, because it includes new revenue sources for increased funding.

Senator Barack Obama

Senator Obama’s energy policy shares some common ground with Senator McCain’s. Obama also calls for reduced energy dependence and supports increased domestic energy creation. His plan seems to place greater emphasis on developing green energy sources through major government investment in new technologies.

The first action in the energy sector by an Obama administration, according to the campaign’s website, would be to institute a windfall profits tax on oil companies who have seen record profits in recent years. The campaign claims this tax would provide funding for an immediate “emergency energy rebate” of $1,000 per household ($500 per individual) to help families pay energy bills, including heating oil. Obama’s platform directly addresses the rising price of home heating, setting the goal to weatherize 1 million homes each year. Senator Obama’s plan also includes increased funding for LIHEAP, though no specifics are offered to describe what level of funding would be required. A “portion of a second round of fiscal stimulus” would fund the weatherization project and increased LIHEAP funding. The Obama campaign believes it holds the higher ground on the issue of heating oil assistance, as articulated by Obama’s state director in Maine, Toby McGrath, in a story on NPR: “…when it comes to the price of heating oil and gas prices, Senator Obama clearly has a plan for Mainers and America, whereas Senator McCain doesn’t.”

Obama’s energy plan also includes a plan to order a “swap” of the US Strategic Petroleum Reserve–removing light, sweet crude from the reserve and replacing it with heavy crude. Theoretically, this would lower gasoline and heating oil prices by boosting supply–easily refined light, sweet crude could be quickly made into gasoline and heating oil and injected into the market. The potential effectiveness of this plan has not been confirmed by industry experts.

Obama’s platform, like Senator McCain’s, includes a condemnation of speculation on the energy commodities market and outlines plans to increase oversight of that market: “Barack Obama and Joe Biden will close energy industry market loopholes and increase transparency to prevent traders from unfairly lining their pockets, while driving up oil prices at the expense of the American people.” Like Senator McCain, Senator Obama’s position on S. 3268, the Stop Excessive Energy Speculation Act of 2008, is unknown.
As previously mentioned, Obama’s energy platform includes a specific reference to LIHEAP, in combination with weatherization, as a tool to provide every needy family with affordable home heating. Senator Obama also abstained from voting on H.R. 2638, the Disaster Relief and Recovery Supplemental Appropriation Act of 2008, which included increased LIHEAP funding. In March of 2006, Senator Obama voted Yea on S. 2320, supporting increased LIHEAP funding for fiscal year 2006.

Whoever is elected to the nation’s highest office on November 4th, he will bring numerous new policies with him. It is important that every eligible voter casts his or her vote for the next American president, as our new leader’s decisions will have a tremendous impact on our daily lives, our pocketbooks, and our shared future.

NOTE: Neither Senator Obama’s nor Senator McCain’s campaigns responded to repeated requests for comment on this report.

This report first appeared in the October 24, 2008 edition of the HEAT This Week newsletter

Today, the New York State Energy Research and Development Authority released its data for average heating oil prices across New York State from last week.  HEAT USA prices for four regions were significantly lower than the NYSERDA average.  HEAT USA member prices were $0.40 to $0.80 lower per gallon in New York City, on Long Island, in the Lower Hudson Region, and the Western Region.

Members, contact the HEAT USA Membership Service at 1-800-660-4328, 9 am to 9 pm weekdays, to find out your dealer’s price for the day.  Non-members, call 1-888-432-8872 to find out more about how you can save on heating oil with HEAT USA.

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.