Fears that Israel’s ground and air campaign against Hamas in Gaza could disrupt future oil supplies from the Middle East continued to dictate the mood of the market today, lifting crude and heating oil prices by 4.5% and 6%, respectively.  Crude oil closed the day at $48.81 a barrel on NYMEX.  Last week’s announcement by the U.S. Department of Energy that it would resume buying oil for the Strategic Petroleum Reserve also contributed to rising prices by building anticipation of stronger U.S. demand and reduced domestic supply.  Russia’s natural gas supply line to Ukraine remains cut off as a result of a contract dispute between the two nations, which also contributed to higher oil prices as European traders continued to question Russia’s reliability as an energy supplier.

HEAT USA price experts were disappointed to announce another large increase in retail heating oil prices as the markets turned in another round of sharp price increases in oil-based commodities.

HEAT USA Price Report
Evening projection (for Tuesday’s average retail heating oil price per gallon): UP $0.11

The price of heating oil had risen 2.5% and the price of crude had gained 1.7% to $47.14 a barrel as of 9:52 eastern time this morning on NYMEX.  The armed conflict in Gaza continued to lead the market following the Israeli ground invasion that began on Saturday.  Fears that the conflict could lead to reduced oil exports from the region intensified as “an Iranian military commander called for Islamic producers to cut supplies to Israel’s supporters in Europe and the United States, the official IRNA news agency reported on Sunday.”  However, an OPEC source told the Reuters news agency that the Iranian’s comments did not reflect the intentions of the cartel and assured that there were no supply cutbacks in the works, according to CNBC.com.  Nevertheless, instability in the region continued to startle investors who believed supply disruptions could be imminent as the fighting in Gaza escalates.

Russia’s refusal to supply Ukraine with natural gas over a still-unresolved contract dispute intensified concerns about Russia’s unreliability as an energy supplier, further contributing to higher oil oil prices.

HEAT USA price experts noted an increase of more than 20 cents in average retail prices since last Monday, and announced another moderate price increase that went into effect this morning.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: UP $0.04 to $0.05
Morning projection (for Tuesday’s average price per gallon): UP $0.04

Crude oil surged by almost 13% to end the year at $43.99 a barrel, and heating oil leaped by nearly 10% in a major afternoon rally on NYMEX today.  Although fundamental concerns about the economy and worldwide oil demand remain, news of reduced refinery activity and need to cover short bets led to a buying frenzy, as Darin Newsom, a senior analyst at DTN, explained to MarketWatch.com: “We are seeing some year end short covering.  The fundamentals are still very bearish.”

HEAT USA price experts announced that the unexpected price jumps would lead to big retail price increases that will apply to Thursday’s and Friday’s prices, due to the New Year’s holiday.

Happy New Year from The HEAT Zone and HEAT USA!

HEAT USA Price Report
Evening projection (for Thursday and Friday’s average retail price per gallon): UP $0.12

The price of crude fell 2.5% this morning to $38.14 a barrel while the price of heating oil gained two-tenths of a percent as of 9:51 am eastern time on the last day of the 2008 calendar year.  Investors looking back at the last year on the oil market had reason for pessimism, as the price of crude lost 60% following its all-time high of $147 a barrel in early July.  A struggling world economy and receding demand levels in the U.S., Japan and Europe continued to heavily influence the market.

The U.S. Energy Information Administration’s weekly data are due out in the next hour, and most analysts are predicting a drop in crude stockpiles in contrast to increases in gasoline and distillate stockpiles.

HEAT USA price experts announced a small increase in retail prices today, despite yesterday’s decreases in crude and heating oil prices on the commodities market.  They speculated that the price increase could stem from increased heating oil demand as a result of a new spate of cold weather settling into the Northeast.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: UP $0.01
Morning projection (for Thursday-Friday’s average price per gallon): UP $0.02

Israel’s attacks on Hamas in the Gaza strip spurred a spike in crude and heating oil prices this morning on fears that political instability could affect future oil supplies.  Although both crude and heating oil retreated from their early gains, both closed above their opening prices, at 5.5% and 3% higher, respectively.  Anxiety over the Gaza conflict having consequences in oil-producing nations were further intensified when the Israeli government made it clear that it would continue to attack Hamas in what Defense Minister Ehud Barak called a “war to the death.”

Increasing Chinese stockpiles and the falling dollar covered in this morning’s price report continued to boost oil prices, but persistent worries over declining demand and consumption in the U.S. prevented steeper gains.

HEAT USA Price Report
Evening projection (for Tuesday’s average price per gallon): UP $0.04

Israeli tanks near the Gaza border Image: New York Times/AP/Sebastian Scheiner

Over the last few months, economic factors have caused changes in oil prices, with few exceptions.  Yesterday’s Israeli air strikes on Hamas infrastructure in the Gaza strip showed how geopolitical events can also have profound effects on the world oil market; oil prices jumped this morning as Israel continued its assault on Gaza’s ruling faction.  The military action stoked fears that instability in the Middle East could lead to oil supply disruptions–but fears of long-term supply problems are largely unfounded, according to an Associated Press article:

“There could be fear that an escalating Middle East conflict could disrupt supplies, though I don’t see that happening at this point,” said Gerard Rigby, energy analyst with Fuel First Consulting in Sydney. “(Israel-Palestinian conflict) always causes a bit of a blip and is one component that could support prices short-term.”

A declining dollar, depressed by consistently negative US economic news, also helped to lift oil prices, as cheap U.S. currency made the commodity a more attractive investment.  China also announced plans to increase its crude oil stockpiles while prices are low, maintaining brisk imports from OPEC members (primarily Saudi Arabia).  OPEC member United Arab Emirates also helped support prices by announcing production cuts in line with OPEC targets set at its meeting in Algeria earlier this month.

As of 9:58 am eastern time, the price for a barrel of crude had retreated from an early peak of $42, but still stood more than a dollar up on the day at $38.79.  Heating oil followed a similar path, up 3% over Friday’s closing price.

HEAT USA price experts reported a 4¢ increase in the price of heating oil over Friday’s price early this morning, as well as a 6¢ increase effective at 10 am as a result of the spike in market prices.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: UP $0.10
Morning Projection (for Tuesday’s average price per gallon): DOWN $0.01

With yesterday’s OPEC production cuts already a distant memory, the market price of crude and heating oil dropped far and fast in late trading today.  Crude oil lost nearly 10% to close at $36.22 a barrel, and heating oil fell by almost 4%.

All-around gloomy economic news precipitated the drops, directly and indirectly indicating that oil demand continued to slow this week and will not rebound any time soon.  The EIA’s short-term energy outlook released yesterday included rising domestic crude supplies and a 4.9% drop in overall U.S. demand over the last four weeks.  China’s plan to cut gasoline and diesel prices apparently had no effect on prices, but could lift future prices if it is successful in stimulating demand.

HEAT USA price experts were happy to report a larger-than-expected decrease in retail heating oil prices for tomorrow.

HEAT USA Price Report
Evening projection (for Friday’s average retail heating oil price per gallon): DOWN $0.04

The failure of OPEC’s 2.2 million bpd production cut was further emphasized this morning, as oil prices sunk to new lows.  The price for a barrel of crude rested at $37.90 and the price for a gallon of heating oil had lost a penny as of 9:49 am eastern time.  News of China’s intention to cut domestic fuel prices in an attempt to stimulate demand fueled a slight recovery early this morning, but it was quickly erased.

OPEC’s production cut is widely viewed as insufficient to pull up oil prices, especially considering the cartel’s history of not fully complying with its own production targets.  As Edward Meir of MF Global stated in an CNBC article, “The verdict was a resounding vote of no-confidence in the (OPEC) cartel’s ability to curtail production given its previous tendencies to backslide on commitments.”

HEAT USA price experts confirmed a small decrease in retail prices this morning, and looked forward to another slight decrease tomorrow.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: DOWN $0.02
Morning projection (for Friday’s average price per gallon): DOWN $0.02

Oil prices plunged today, moving in the opposite direction intended by OPEC when it announced a new production cut of 2.2 barrels per day, effective January 1st.  Although the cut was the largest ever implemented by the cartel, and slightly deeper than the 2 million bpd cut analysts expected, the market at large viewed the cut as not substantial enough to compensate for serious reductions in demand that have been seen in recent months.  From CNBC.com:

“It seems like, despite the fact that the economies of producer nations are clearly in trouble, they don’t have the temerity to actually go ahead and do the kind of cut that would be really interesting to traders to turn this around,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

At the 2:30 pm NYMEX close, crude oil had lost 8% to settle at $40.06 a barrel and heating oil had lost about 1%.

New stockpile data released today by the EIA showed increases in crude and refined oil products as a result of continually-falling demand also contributed to falling oil prices.

HEAT USA price experts were pleasantly surprised by the drop in oil prices, and predicted a slight reduction in retail prices tomorrow.

HEAT USA Price Report
Evening projection (for Thursday’s average retail heating oil price per gallon): DOWN $0.015 to $0.02

OPEC announced a 2.2 million barrel per day (bpd) production cut from current levels, a 4.2 million bpd reduction from September levels.  The U.S. Energy Information Administration released its latest stockpile numbers just moments before the OPEC announcement, showing  a 500,000 barrel increase in U.S. crude oil stocks last week, which helped to hold down crude prices on NYMEX.  The price for a barrel of crude stood at $43.55 at 10:59 am eastern time (just 0.1% lower than its opening price) and showed was on the rise, presumably on the news of the OPEC cut.

The EIA data also showed a 5.5% decrease in residential fuel oil (heating oil) stocks last week, balancing out a 2.2% increase in distillate fuel stocks.

HEAT USA Price Report
Morning projection (for Thursday’s average price per gallon): UP $0.02

Crude and heating oil prices fluctuated this morning and were near their opening prices as of 10:03 am eastern time; crude oil had risen half a percent to $43.62 a barrel, and heating oil had gained almost three percent.

Saudi Arabia’s oil minister Ali Naimi set expectations on Wednesday of a 2 million barrel per day production cut to be agreed upon at the OPEC meeting today.  While that would be the largest single production cut in the cartel’s history, many analysts see it as inadequate to push up oil prices.  From Bloomberg.com:

“I think 1.5 million to 2 million is needed just to stabilize the market,” said Robert Montefusco, a broker at Sucden (U.K.) Ltd. in London. “Demand is falling away quite rapidly. They will probably need more if they want prices going back up to $50 and higher.”

The oil market is also waiting for the announcement of the EIA’s weekly oil inventory data.  Predictions of the stockpile data vary, but most include an increase in crude supplies, which would help drive down oil’s market price.

HEAT USA price experts confirmed a one penny increase over yesterday’s retail prices this morning, and stated that results of the OPEC meeting and official EIA stockpile data were needed to project tomorrow’s prices.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: UP $0.01
Morning projection (for Thursday’s average retail price per gallon): TBD

After climbing steadily this morning, crude and heating oil prices fell to close down 3% and up a fraction of a percent, respectively.  The Federal Reserve reduced the federal funds interest rate to a range of 0% to 0.25%, strengthening the dollar and making oil a less attractive buy.

With the OPEC meeting just hours away, Saudi Arabian oil minister Ali Naimi’s announcement that OPEC plans to cut production by 2 million barrels per day tomorrow was met with some disappointment, as analysts believed the reduction would not be enough to catch up to rapidly-falling demand.  Earlier news that Russia would cut production in coordination with the cartel appears to have lost influence, as a New York Times article explained:

But Russia’s proposal is unlikely to have a big effect on the market. Some analysts see the move as simply window-dressing — Russian production will drop anyway this year, they say, because of the government’s own restrictive policies, inadequate investments and hefty export taxes.

As has often been the case in the last three months, negative economic news and a bleak outlook for recovery of the global economy managed to overshadow statements or events that might lift the price of oil.

HEAT USA price experts predicted a small increase in retail heating oil prices tomorrow.

HEAT USA Price Report
Evening projection (for Wednesday’s average retail heating oil price per gallon): UP $0.01

As representatives of OPEC member nations arrived in Oman, Algeria for tomorrow’s meeting, oil prices rose steadily, showing strong expectations of a production cut that could be the biggest in the cartel’s history.  The price for a barrel of crude had risen about 2.5% to $45.66 and the price of heating oil had increased by 4% as of 9:57 am eastern time this morning.

Statements by Venezuelan oil minister Rafael Ramirez led many analysts to predict a production cut of 2 million barrels per day or more to come out of the meeting–a focused attempt by the group to halt the plunge of oil prices.  Russia, the world’s largest non-OPEC oil producer, plans to cut production in coordination with the group, which also helped to support prices on the markets this morning.  “Whatever they do now, presumably more than a 2 million barrels a day cut, is going to help, but what helps the psychology is that Russia has also announced they may join in,” said Johannes Benigni, chief executive officer at consultants JBC Energy GmbH in Vienna, quoted in a Bloomberg.com article.

HEAT USA price experts confirmed that the retail price of heating oil fell 13¢ from yesterday morning’s price spike, opening today at 2¢ below Monday’s opening price.  Focus on the OPEC meeting and the increase in oil prices on NYMEX led them to predict moderate-to-large price increases tomorrow.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: DOWN $0.13
Morning projection (for Wednesday’s average price per gallon): UP $0.07

With OPEC’s next official meeting in Algeria only two days away, focus on the cartel has intensified.  Recent statements by OPEC member nations’ oil ministers have given clear indications that another production cut is on its way.  The imminent production cut of up to 2 million barrels per day made for an optimistic market this morning that saw the price of crude jump 6% to $49.26 a barrel as of 9:23 am eastern time.  Heating oil also gained 6%.

HEAT USA price experts noted that the steep price increase this morning set the pattern for continuing gains throughout the day.  They reported that retail prices had already reacted to this morning’s market news, climbing over ten cents a gallon.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: UP $0.115
Morning projection (for Tuesday’s average price per gallon): UP $0.04

In one of the most volatile trading days for oil commodities in recent months, this morning’s inventory data released by the EIA predicted the final performances of crude and heating oil. Crude oil stocks in the U.S. rose less than expected while stockpiles of gasoline and distillates, which include heating oil, increased substantially, defying predictions of slight decreases. The data, coupled with fresh announcements that Saudi Arabia has begun to reduce oil production and exports, drove up crude oil by over 3% to $43.52 a barrel. Heating oil, weighed down by the surprise inventory increases, fell by about 2%.

HEAT USA price experts announced that the midday price increases announced this afternoon had been cut in half by late-day market losses by heating oil on NYMEX, to be reflected in tomorrow’s retail prices.

HEAT USA Price Report
Evening projection (for Thursday’s average retail heating oil price per gallon): DOWN $0.02

After rising steadily this morning and then plunging sharply in response to U.S. stockpile data showing an increase in distillate stocks, the market price for heating oil has shot up again, presumably as a result of Saudi Arabia’s announcement of deep production cuts.  The Zone will publish the full story this evening in today’s final price report.

HEAT USA Price Report
Average retail heating oil midday price change: UP $0.04

Crude and heating oil prices both fell 2.5% from their morning increases in reaction to U.S. inventory data released by the EIA at 10:35 am eastern time.  Although the increase in crude oil stocks was smaller than expected (0.4 million barrels vs. predictions of a 1.1 million barrel increase), gasoline and distillate stocks rose by several million barrels following predictions of stock decreases.

The effects of the data were immediately apparent on the oil markets, but could be counteracted in the last four hours of trading.

Crude and heating oil prices jumped up this morning, effectively erasing yesterday’s price drops. As of 10:03 am eastern time, crude was up 5% to $44.16 a barrel and heating oil was 3% above its Monday closing price. A Bloomberg article cited near-certain production cuts to come out of OPEC’s December 17th meeting and Russia’s plans to make a coordinated production cut as the main reasons for today’s optimism on the oil market. Industry analysts surveyed by Bloomberg expect a 1.3 million barrel increase in crude stocks to be announced by the EIA this morning, but also predicted a significant decrease in gasoline and distillate stocks.

CNBC.com reported that U.S. gasoline demand in November increased 0.3% over November 2007 levels, leading Petromatrix analyst Olivier Jakob to comment, “We can’t really talk about ‘demand destruction’ in the U.S. anymore.”

Good news appeared to outweigh bad this morning, as expectations of increasing crude stocks in the U.S. and falling crude imports in China failed to drag down prices.

HEAT USA price experts confirmed an expected moderate drop in retail heating oil prices for today, but predicted a similar margin of increase in tomorrow’s prices.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: DOWN $0.05
Morning projection (for Thursday’s average price per gallon): UP $0.06

The Energy Information Administration released new data today, reducing predictions for global oil demand by 50,000 barrels per day in 2008 and 450,000 barrels per day in 2009.  The EIA also forecast lower gross domestic product growth for 2008 and 2009.

The negative economic news of the day appeared to dominated the markets, dragging down stock markets as well as crude and heating oil.  The price for a barrel of crude dropped by about 4% to settle at $42.44.  The price for a gallon of heating oil fell by 3.5%.

HEAT USA price experts were pleased to reverse their prediction of a slight price increase in tomorrow’s retail heating oil price, instead forecasting  a moderate price decrease.

HEAT USA Price Report
Evening projection (for Wednesday’s average retail heating oil price per gallon): DOWN $0.05

Oil prices climbed yesterday on optimism for economic recovery motivated by President-elect Barack Obama’s announcement of a big public works program that came on Sunday.  Current realities appeared to have dampened that optimism this morning, as crude and heating oil prices both fell slightly at the market’s open.  Today’s economic bad news comes from Japan, the second-largest oil-consuming nation after the United States.  In the third quarter of 2008, Japan’s economy shrank by 1.8%, a larger-than expected margin that will most likely result in falling oil demand.

On the other hand, comments by the Libyan oil minister and the president of OPEC signaled plans for another major production cut at their December 17th meeting.

By an hour into the trading day, positives and negatives appeared to have counterbalanced each other.  After early declines, the price for a barrel of crude was up by 0.7% to $44.02 and the price for a gallon of heating oil was 0.5% above its opening price at 9:51 am eastern time.

HEAT USA Price Experts announced a small decline in retail heating oil prices that cut into Monday morning’s steep increases.  They expect minimal changes in tomorrow’s prices, based on current market movements.

HEAT USA Price Report
Today’s average retail heating oil price per gallon: DOWN $0.02
Morning projection (for Wednesday’s price per gallon): UP $0.01