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 and heating oil prices both dropped on the first day of trading in 2009. Both commodities fell several percentage points this morning before posting a sharp increase shortly after 9 am eastern time. As of 9:50 am eastern time, the price for a barrel of crude had fallen 2% to $43.67, and the price of heating oil had dropped about 1%. Wednesday’s rally, stimulated by lower-than-expected inventory numbers and the possibility of refining problems in the U.S. It seems that ever-present wories over the global recession returned to the fore this morning as NYMEX opened for trading in 2009.
Toby Hassall, an analyst at Commodity Warrants Australia in Sydney, quoted in a Bloomberg.com article, explained:
That rally on the 31st didn’t have too much behind it so we’re seeing crude come back to a level more reflective of the fundamentals. We still don’t have a clear picture of when a global recovery is going to take place.
HEAT USA price experts confirmed a big up tick in retail heating oil prices as a result of Wednesday’s rally, and predicted a decline in prices for Monday as the markets leveled out,
HEAT USA Price Report Today’s average retail heating oil price per gallon: UP $0.12 to $0.15 Morning projection (for Monday’s average price per gallon): DOWN $0.07
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.
HappyNewYear 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
This morning’s trend of falling crude prices for January delivery and increases in crude prices for February delivery combined with rising heating oil prices on January and February contracts continued through the market’s close at 2:30 pm. January crude contracts lost 8% to close at $33.17 a barrel while February contracts rose by about 2% to $42.36 a barrel. Heating oil for January and February delivery rose at similar rates, with the January contracts closing up by about 1.5%.
As the NYMEX crude oil storage site at Cushing, Oklahoma rapidly approached capacity, oversupply of the market became more apparent. However, assurances by Saudi Arabia, the world’s largest oil producer, that it would reach decreased production targets next month helped raise bets on higher prices in February of next year. Expectations of another OPEC cut in January also helped boost February contract prices, as described on Blomberg.com:
“The scale of the cuts is quite significant,” said Rachel Ziemba an analyst at RGE Monitor, an economic research company in New York. “With oil at $35, members can’t balance their budgets. OPEC will find it hard to do more than they’ve already promised.”
HEAT USA price experts noted the price gains on NYMEX and predicted a corresponding increase in Monday’s retail prices.
HEAT USA Price Report Evening Projection (for Monday’s average retail price per gallon): UP $0.03 to $0.04
Oil prices continued their epic fall today, touching a four-year low of $38.71 a barrel. And a combination of statistics and trends appear to point to the low-price pattern continuing well into 2009. A Wall Street Journal article detailed the evidence of still-falling demand in the world’s biggest oil-consuming nation: U.S. crude stockpiles have increased 11 of the last 12 weeks, and the Cushing, Oklahoma delivery point for NYMEX crude is just 500,000 barrels shy of record-high storage numbers. The article also quoted analysis firm Tudor, Pickering, Holt, and Company’s estimate of $57.50 per barrel average price in 2009.
A second WSJ article examines the challenges that OPEC faces in its quest to cut production sufficiently to meet falling demand. The main challenge, the article suggests, is the impossible task of predicting when worldwide demand will hit its floor: “Intuitively, low prices today should curb investment, meaning dearer oil tomorrow. But against that, no one knows where falling demand will bottom out.” A look at crude oil futures also indicates a tough task for OPEC. Although advance contracts show a fairly steep price increase, they also reinforce the fact that the oil market is heavily oversupplied, as the article’s author explains in this video:
In fact, oil producers have more oil than they know what to do with, leading them to rent floating storage facilities as their land-borne storage spaces fill up. Furthermore, when inflation is factored into distant futures prices, the increases are much less heartening for oil producers. The furthest out contract, for December 2017 delivery, is currently at about $77 per barrel. At a 1% rate of inflation, that $77 barrel would be worth 71 of today’s dollars, but at a 3% inflation rate, would only be worth $59 in today’s money. The wide range of possible values for 2017 oil makes it even more difficult for producers to set targets and make decisions about expanding production in order to maximize profit.
As the market’s brush-off of the recent production cut shows, OPEC’s recent attempts to halt falling prices have had little or no effect, and available data supports the estimation that it may be a long while before the cartel is able to exert influence they way they would like, which of course means lower prices for longer periods.
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
The $15 billion bailout bill that passed the House late Wednesday died in the Senate yesterday, following heavy partisan opposition that included a Republican filibuster. The failure of the bill was met with widespread market pessimism that touched Asian stock markets as well as U.S. stocks and crude and heating oil prices. Crude had fallen almost 7% to $44.71 a barrel and heating oil was down about 4% minutes before the opening of the New York Mercantile Exchange at 9 am eastern time.
Goldman Sachs weighed in on the future of oil prices, reducing its estimate to an average 2009 price of $45 a barrel, saying, “The collapse in world oil demand in the fourth quarter of 2008 as the global credit crunch intensified, now threatens to push oil prices below $40 a barrel in the near term.” (from CNBC.com)
Although OPEC is still expected to make a large cut in production levels (up to 2 million barrels a day) at its meeting next Wednesday, the auto bailout failure and the global recession appeared to dominate the market mood this morning.
HEAT USA price experts confirmed yesterday’s small end-of-day increase, but pointed out that the mid-morning increase made for an overall price jump of $0.11 from Thursday morning to today.
HEAT USA Price Report Today’s average retail heating oil price per gallon: UP $0.02 Morning projection (for Monday’s average price per gallon): DOWN $0.04
Russian president Dmitry Medvedev, speaking on Russian state television today, confirmed expectations that his country would reduce oil output in coordination with OPEC at the cartel’s meeting in Algeria next Wednesday. “I would like to say that we are ready to protect ourselves as this is our base income, oil and gas,” said Medvedev, quoted by the news agency AFP.
OPEC and Russia, the world’s second-largest oil producer after Saudi Arabia, have been courting each other heavily as the price of oil has plummeted in recent weeks, with spokespersons on both sides expressing an interest in cooperation. In his remarks, Medvedev also mentioned the possibility of Russia seeking membership in OPEC.
The announcement topped off a very strong trading for oil day that included anticipation of a major OPEC production cut and predictions of demand recovery in 2009 announced by the IEA. Crude oil gained over 10% to settle at $47.98 a barrel. Heating oil rose by about 6%.
HEAT USA price experts expect a smaller price increase tomorrow, as the market price of heating oil continued to rise after today’s mid-morning price increase.
HEAT USA Price Report Evening projection (for Friday’s average retail heating oil price per gallon): UP $0.03
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
The oil market got an unexpected boost this morning when the EIA announced decreases in crude, gasoline, and distillate stockpiles in the U.S. Analysts had predicted stockpile increases in all three categories. The good news did briefly drive up crude and heating oil prices on NYMEX, but optimism was short-lived. The stockpile numbers were quickly overshadowed by the results of a survey by a private company that showed corporate layoffs hit near a seven-year high in November.
The two news stories appeared to counterbalance each other, as crude and heating oil prices closed just a fraction of a per cent off of their opening prices.
HEAT USA price experts revised earlier predictions to show no change in average heating oil prices from today to tomorrow.
HEAT USA Price Report Evening projection (for Thursday’s average retail heating oil price per gallon): NO CHANGE
After posting a short-lived recovery this morning, crude and heating oil prices both dropped today, losing 4% and 1%, respectively. Crude closed at $46.96 a barrel, the lowest closing mark since May 20, 2005. Steadily-worsening economic conditions around the world continued to be the main cause of falling oil prices, as summarized by Marketwatch.com: “‘Markets are increasingly concerned that the worldwide economic decline is too pronounced to be fixed any time soon and a worldwide recession will curtail energy demand,’ said analysts at Action Economics.”
Perception that OPEC nations are not reducing production to agreed-upon levels and anticipation of EIA data on U.S. oil stockpiles to be announced tomorrow also put a drag on NYMEX oil prices today.
HEAT USA price experts were pleased to see a turnaround in the price of heating oil on the markets today, and expect a small reduction in retail prices tomorrow.
HEAT USA Price Report Evening projection (for Wednesday’s average heating oil price per gallon): DOWN $0.02
OPEC’s decision to not decide on production cuts until its meeting on December 17th weighed down the price of oil throughout the day today. Crude oil lost 9.3% to close just below $50 a barrel on NYMEX this afternoon. Heating oil had fallen by 6% at the end of trading.
Although production levels remaining unchanged for the time being had a negative effect on prices today, statements by representatives of OPEC hinted at a likely production cut at the December meeting. From Bloomberg.com: “The group will trim production at its next meeting, its secretary general said today. Slowing growth means demand will be ‘much lower’ than expected a month ago, OPEC said after a Nov. 29 gathering.”
HEAT USA price experts predicted a large drop in retail prices tomorrow, reflecting today’s market decline.
HEAT USA Price Report Evening projection (for Tuesday’s average heating oil price per gallon): DOWN $0.10
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
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
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
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
Crude and heating oil prices both had many ups and downs today, but both ended the day slightly above where the started, with crude oil gaining 0.4% to $61 a barrel and heating oil rising 2% to $1.98 a gallon as of 3:58 pm eastern time.
HEAT USA price experts anticipate a slight increase in Monday’s retail price, corresponding with today’s market performance.
HEAT USA Price Report Evening Projection (for Monday’s average heating oil price per gallon): UP $0.05
This morning’s financial news is dominated by the recently-released US employment report, which showed that the US economy cut 240,000 jobs in the month of October, bringing the nation’s unemployment rate to 6.5%. The gloomy news increased anticipation of a global recession and contributed to a weakening dollar. Despite the new employment numbers, the Dow Jones average rose slightly, leading crude and heating oil prices up as well.
Crude was up nearly 2.5% to $62.21 a barrel, and heating oil rose 2.3% to $1.99 a gallon as of 10:24 am eastern time.
HEAT USA price experts confirmed yesterday’s prediction of a big drop in retail heating oil prices and forecast a slight increase on Monday.
HEAT USA Price Report Today’s average heating oil price per gallon: DOWN $0.10 Morning projection (for Monday’s average price per gallon): UP $0.03 to $0.04
