ShareThisBy TIMOTHY C. BARMAN
Sunday, October 29, 2006
It doesn't take a degree in economics to see that something seems askew with the price of heating oil.
While the cost of gasoline has tumbled by 30 percent since its peak this summer, home heating oil prices have dropped only slightly _ about 7 percent _ over the same period.
What gives?
Part of the blame goes to the Europeans and their strong demand for diesel fuel, which is essentially the same product as home heating oil, a petroleum industry spokesman said.
And it also has to do with timing _ demand for heating oil is ramping up while demand for gasoline is falling off.
In the unlikely event you forgot, gasoline was extraordinarily expensive over the summer, hovering near $3 a gallon. Heating oil was also high, with the average price staying close to $2.60 a gallon all summer long.
At summer's end, crude oil prices, which play a key role in setting the prices of other fuels, started dropping. Analysts said a combination of factors worked to push down crude, including the perception of easing tensions between Iran and the United Nations over Iran's nuclear ambitions, a mild hurricane season, and the usual decline in demand for gasoline at this time of year in the United States.
On top of that, there were higher than normal amounts of crude oil, heating oil, gasoline and natural gas in storage, which also helped to push down energy prices.
Even the recent emergency meeting by OPEC, in which the member countries decided to cut production by 1.2 million barrels of oil a day didn't reverse crude oil's decline. It went from about $76 a barrel in August to $59 last week on the New York Mercantile Exchange, a drop of 21 percent.
The drop has translated into lower gasoline prices. But heating oil seems to be tracking on its own path. While prices have declined, they seem to be falling in slow motion.
The reason has to do with worldwide supply and demand, according to John Felmy, chief economist at the American Petroleum Institute, a petroleum trade group in Washington, D.C.
Heating oil and diesel belong in a group of fuels known as "distillates." Both are nearly identical, except that heating oil contains more sulfur.
Demand for distillates is strong, Felmy said, because Europe is switching more and more to diesel-powered cars.
Because there's less available on the world market, the United States has not imported great quantities of diesel fuel, he said. By contrast, the United States imported a record amount of gasoline this year.
Another factor has to do with the time of year.
"The difference in rates of decline (has) to do with different seasonal patterns of demand," said Jonathan Cogan, information specialist for the Energy Information Administration, part of the U.S. Department of Energy.
In other words, we're headed out of the driving season, and demand for gasoline is falling. That usually pulls down gas prices, Cogan said.
At the same time, we're heading into the heating season, the time when demand for heating oil picks up. That usually pushes prices higher.
As for this winter, the Energy Department is predicting lower heating costs for those who use natural gas and propane, and higher bills for those who use heating oil.
The estimate is based on a National Weather Service forecast of a winter that's 5.9 percent colder than last winter.
The Energy Department said that households heating with natural gas will spend about $119, or 13 percent, less this winter than last winter.
Those with heating oil can expect to pay, on average, $91, or 6 percent, more this winter than last.
