EnergyMiser101

Why Is Heating Oil So Expensive This Winter?

     Ouch! We just got our heating oil bill for a delivery made a few days ago and it was over $700 for just 183 gallons! That really hurts.

     The U.S. Energy Department says households will have to spend 30 percent more on heating oil this year than they did last winter, and do we ever feel it! Unfortunately, there isn't much on the horizon to indicate things will get better any time soon.

     If you've gotten a similar bill, you know how helpless it makes one feel.

     After all, we've picked all the low-hanging fruit in an effort to conserve the precious fuel. We've insulated. We've installed a new furnace, we've plugged leaks around doors and, most importantly, we've kept our thermostat set at a chilly 62 degrees. Why, at times I felt so cold that the only thing that would keep my stiff fingers warm was keeping them wrapped around a hot mug of tea.

     Why does the price of heating oil just go up and up and up? 

     The answer lies in the increase in demand for fuels as the economy has begun to pull out of the worst recession since the Great Depression. The Energy Department says that in 2010 demand for diesel fuel, which is nearly identical to heating oil, grew by 3.6 percent. That's a pretty hefty increase, and the gain is matched by improvements in consumption in much of the developed world. The Energy Department says to expect more of the same this year.

    Where is all that diesel fuel going? For trucking. As business at factories improves, diesel-fueled trucks ship more goods. Increasing consumer confidence means people start buying more goods, and those goods are shipped to stores or from Web sites like Amazon by trucks that burn diesel fuel.

Oil Supply Is Plentiful, but Prices Rise Anyway

     If you notice higher gasoline prices at your local pump, don't think it's because there isn't enough oil to go around. Supplies of refined products, both gasoline and heating oil, are plentiful. Gasoline stocks rose this past week, but prices climbed higher anyway, which is contrary to what we all learned in Economics 101. In fact, there hasn't even been a significant hurricane, something that often causes refinery shutdowns and temporary refined-product shortages at this time of year.

     Oil prices (and that includes prices for gasoline and heating oil) are acting completely independently of supply/demand fundamentals. It's the recent rise in the stock market and the weakening of the U.S. dollar against other currencies that are making the fuels you consume more expensive. Traders believe that oil, just like gold, will hold its value as currencies decline.

Oil Is the New Gold

     Prices for gasoline and heating oil rose in the U.S. this past week, following crude oil. There were no major supply/demand fundamentals driving prices up, and as I mentioned in an earlier entry, supplies of refined products, particularly heating oil, are high. The major factor pushing fuels higher is the declining value of the dollar relative to other currencies.

      Speculators are trading their dollars for oil because they believe that oil will do a better job of holding its value. In the past two years, as the economy steadily weakened, oil has become more of a financial instrument, like gold, and has begun to respond less to to changes in supply and demand.

Propane--The Alternative Fuel of the 1950s

     This week we heard General Motors tout the fuel efficiency of its electric Chevy Volt at an astonishing 230 miles per gallon. The Volt, set for a 2010 debut, is one of many alternative fuel automobiles under development. Honda this week reiterated its commitment to a hydrogen-powered car. Others will be powered by ethanol, natural gas and bio diesel.

     There's a lot of excitement over these cutting-edge technologies, but alternative fuel vehicles are nothing new. In fact, they have been around for a very long time. One of the trailblazers was none other than my father-in-law Joe who tried something entirely new on a 1950 Plymouth, similar to the one pictured--converting its six-cylinder gasoline engine to run on propane!

Why Do Crude Oil Prices Fluctuate So Much?

      Price volatility is expected in any commodity market. In fact it's how people trading those commodities make money. But lately crude oil and related products like gasoline and heating oil have had so many wild price swings that business owners and even homeowners have had a difficult time budgeting their energy costs. Here's some background for you on why these swings may be happening.

    To understand the current pattern of oil prices, one has to put those prices into some historic perspective. When I was covering petrochemical markets in the early 1990s and we were in the middle of a bull market one of my colleagues insisted that crude prices would soon (in a matter of months) top $100 per barrel.

Expect to Spend More on Gasoline

    You can expect to pay more when you tank up in coming months as the economy begins to climb out of its economic slump. The U.S. Energy Information Administration's (EIA), in its Short Term Energy Outlook,  said it expects regular grade gasoline prices to peak in July, with an average of about $2.70 per gallon. 

     You may have noticed that U.S. prices have been edging up at the pump since around April, but they are still a big bargain compared with last summer when they hit around $4 a gallon. That's one reason consumers may be a little looser about filling their tanks this summer.

Drive Slightly Slower and Save

       For Spring break we drove from Northern New Jersey to Carolina Beach, North Carolina, where my brother lives. Just about everyone knows that the faster you drive, the more gasoline you burn. But, we thought this was a good time to put that principle to the test.
     During part of the trip my husband tried to maintain a speed of 60-65 miles per hour (mph), and in other areas with higher speed limits, he pushed our Subaru Outback to 70-75 mph. Because our car has a digital readout of average miles per gallon (mpg), it was easy to see how we were doing. The upshot is that at the lower speed, we achieved 33 mpg. When we drove 10 mph faster, we achieved 29 mpg.

Hope for Low Summer Gasoline Prices

     Dreary weather and dreams of summer encouraged me to go on the internet the other day to search for places to stay when we take our summer vacation in Sebago Lake, Maine. In between contemplating cottages, motels and B&B's, I started to think of the energy cost of driving there from New Jersey.

     I had some help from the Energy Department, which just released its monthly forecast for energy supplies and prices. There was good news for me, and for you. The quick message is that crude oil prices and gasoline prices will remain relatively stable for the rest of the year.

Why Is Heating Oil More Expensive Than Gasoline?

     I had my book-club partners over for our monthly get-together last week. Although it was cold and windy outside, the sun flooded through the windows of my dining room and warmed our bodies and our spirits. In that toasty, cozy atmosphere, surrounded by good friends, the conversation naturally turned to--the price of heating oil.

     Why, asked Karen, is heating oil more expensive than gasoline? With gasoline prices below $2 a gallon, the retail price of home heating oil in the Northeast is about a dollar more expensive. It doesn't make any sense, Karen said.

     I had to admit I was stumped for a good answer, so I did a little research.

Gasoline Slump May Ring In the New Year

    The oil market looks so weak due to the global recession that we may all enjoy even lower gasoline prices when we head to holiday parties during the next couple of weeks. OPEC, the oil cartel that includes Saudi Arabia and other major oil producers, agreed on Wednesday to sharply cut its oil production in the hope of shoring up prices.

    But oil prices on the futures market responded almost immediately by tanking on Wednesday afternoon. This suggests that when it comes to oil/gasoline demand, the ailing economy is a huge wound in the oil market that an OPEC band-aid cannot fix--at least not right now. 

    U.S. oil supply remains well above demand, and that doesn't seem likely to change much as long as the world economy founders and  people like you and I consume less gasoline and turn our thermostats down.

    Inventories of crude oil are so high that this is posing a particular challenge to oil producers.  When oil stocks overflow, oil marketers can tap their excess stocks to meet demand, and a decline in OPEC oil production has little effect on the market. In this case, even if demand rises,  prices won't necessarily follow—at least not right away. So, enjoy this gasoline holiday because it looks like it may be here for a while.

How Long Will Gasoline Stay This Cheap?

    It felt great to fill up our Subaru the other day for just $25.00, and it got me reminiscing about the days when I fueled my Ford Pinto (Yes, it's true, my parents let me buy a Pinto when I was 17!) at the local Dean station for $5.00. I know $25.00 is a far cry from $5.00, but it's a lot better than the nearly $50.00 I had to spend to tank up in July. My most recent trip to the gas station has me wondering how long this gasoline holiday is going to last.

     I wrote  about cheaper gasoline in mid-November (Why Did My Gasoline Get So Cheap?), and the fundamentals that explained the price decline haven't changed—a weaker world economy, less driving,  lower gasoline consumption and, therefore, a less precarious supply/demand balance. All those market factors are just becoming more pronounced as we enter the final stretch of 2008.

Why Did My Gasoline Get So Cheap?

      Hey! What's going on? Back in June, when gasoline prices were heading toward $4 a gallon, I posted a blog strongly suggesting that there was nothing on the horizon that would drive down the cost of the motor fuel.

     And now look what's happened. Gasoline is almost $2 less expensive, and every day the price at the pump seems to be a few cents cheaper than the day before.

     So what went wrong? Or, more appropriately for us motorists, what went right? In this case, bad news turned out to be good news.

Sometimes Mass Transit Takes a Back Seat

   

     I'm a big believer in mass transit, and I try to use it as often as possible. When my husband and I go into the city with our daughter, we take the local bus line from Montclair to the Port Authority terminal in Manhattan. It's relatively hassle free--except when you have to stand on the bus--and we feel like we're doing our bit for the environment. But, when you're traveling with a larger group, and you're thinking more about the green in your wallet than the green in your environment, driving is sometimes the most advantageous way to go.

     My recent trip into New York City with a friend shed some light on group commutes. Melissa and I, determined not to spend another long day in the house with our kids, (they had a couple of days off from school for a teachers' convention) decided to take her 14-year old son , his buddy, and our two eleven-year-old daughters to the Central Park Zoo. We figured Xavier and Evan would enjoy skateboarding through the park, taking in the city sites, while the girls laughed it up with the penguins and polar bears. But, our first challenge was getting there.

Why Is Ethanol in My Gasoline?

    When you think of grain alcohol, you may picture a couple of overall-clad good-ol' boys sitting on a porch in cow country shooting the breeze on a hot summer evening. But, even if you never take a drink, you've probably consumed more grain alcohol than you realize, or at least your car has.                

    Ethanol, grain alcohol's other name, has gotten a lot of press lately. It is now blended in more than 50 percent of U.S. gasoline. This story is intended to be a brief primer on ethanol 's evolution as a fuel additive,  and why there is so much of it in your gasoline.

When Will Gasoline Prices Come Down--Or Will They?

    Somebody asked me the other day, "When is the price of gasoline going to come down?" Before I can answer that, I have to say a little bit about why the price went up!

    Gasoline is made from crude oil. For the past century, we've taken the availability of crude oil for granted. The global oil industry actually started in Titusville, Pennsylvania, with the discovery of commercial quantities of oil in 1859 by Col. Edwin Drake.

    In the early 20th century, even bigger deposits were found in Texas and Oklahoma, and soon after in California.  And then there were even bigger discoveries in the Middle Eastern countries of Saudi Arabia, Iran, Iraq, Kuwait and others. The world was awash in oil, and hardly a thought was given to running out.