Rising Oil Prices

Raise Local Concerns

By Steve Bigham

Rising fuel oil prices have sparked growing concern among residents of the Northeast about how best to cope with the cost and cold of the winter heating season. Here in Newtown, there are differing views among fuel oil distributors as to how homeowners should prepare for the winter months.

Jim Kaiser of Holcomb fuel suggests homeowners lock in at a fixed price now so as to ensure they don’t get left out in the cold in mid-winter. He disagrees with President Bill Clinton’s decision to release some 30 million barrels of oil from the nation’s emergency oil reserves, saying any lowering of prices made by this move would only be temporary.

Amid growing global worries about the economic impact of high oil prices, President Clinton said Saturday that tapping the US emergency oil reserve was “plainly the prudent thing to do.” He denied he was motivated by politics.

“Families shouldn’t have to drain their wallets to drive their cars or heat their homes,” he said at the White House before leaving on a trip to California.

The President said he acted to cushion Americans against a likely sharp jump in heating costs this winter because of tight supplies.

The government started taking bids Monday for 30 million barrels of oil – about five percent of the 571 million barrel reserve – for delivery in November.

Although the price has moderated in recent days, crude oil remains above $34 a barrel. High prices have led to demonstrations in France and England and unease in the United States, where gas stations charged more than $2 a gallon in some areas this summer.

Mr Kaiser predicted Mr Clinton’s move would only provide an artificial reprieve from the price hikes. The problem, he said, goes well beyond an oil shortage, with the booming US and Asian economies only a part of the equation.

“You’re going to see a short term drop in prices, but it’s not going to continue. The psyche on the market will drop prices down but only temporarily. That is not what this is designed for. It’s designed more for an act of war or if there was a total break in supply of the OPEC nations. That disturbs the process,” he said.

The problem, Mr Kaiser said, is not a lack of crude oil, but a lack of available oil refineries here in the United States.

“We’re at a historically low inventory. I believe this is the lowest it has been in 22 years,” he said. “At one time, it was the crude oil shortage, but that’s probably not true right now. Thirty-six refineries have been closed in the last eight years in the US and not one new permit was issued. We could be inundated with crude oil but just don’t have the capacity to refine it.”

Seventy-five percent of Holcomb Fuel customers are on a pricing program and most are on a cap program, which provides them with a set price with a 10-cent cap. That should save them money in the long run, he predicted. The best time to have done that was in July and August.

“If the winter is normal or colder, there could be major supply interruptions or shortages in home heating oil and diesel,” he said.

Bob Whitehead of Town & Country Fuel says it may not be in the homeowner’s best interest to lock in on a price right now. He predicts prices will go down

 “The past two years, oil dropped way down from what I paid for it. Now it’s $37-38 a barrel. They’re trying to bring the price down to around $25 a barrel. That would bring it down to between $1 and $1.05 per gallon. Right now I’m charging $1.299 a gallon. A week ago, I was at a 1.399 so that tells you it’s coming down,” Mr Whitehead said.

He wonders why there is suddenly such a shortage of oil. Last year, he said, the Northeast was hit with only one week of really cold weather.

“What happened to all the oil? Where did it all go? Personally, I believe they’re creating this shortage to drive the prices up,” he said.

The state’s Department of Consumer Protection has been closely tracking prices, knowing full well this is the kind of climate in which consumers are vulnerable.

Spokesperson Bill Donahoe said the agency is tracking prices to see who is charging what. Currently, he said, prices range from 99 cents to a $1.05. Anything higher than that is too high, he said. He warned consumers to be very careful about what kind of contract they sign up for.

“One of the problems of dealing with oil companies is once you’re locked in, unless you have a dollar figure attached to the contract, they can legally charge you with whatever their price is for that day,” Mr Donahoe said. “You can be locked into a range, not necessarily a price, so watch out for the weasel wording.”

The Department of Consumer Protection suggests that homeowners determine whether or not to lock into a contract solely on price. What’s considered a “normal?” The best way to find out is to call around to several companies.

“You need to comparison shop. People just don’t do that with oil,” Mr Donahoe said.

Of course, oil prices will ultimately hinge on this winter’s weather and early indications say it may not be pretty.

“If we have a horror show of a winter, we’ll have some problems,” Mr Donahoe said.

The government oil is to be released as part of a “swap” that will require recipients of the crude to return a like amount of oil – plus a negotiated “premium” amount – next year when prices are expected to be lower. First deliveries are expected in November.

President Clinton also announced that states will share $400 million “to help families that can least bear the burden of high energy prices.” He said it was the largest such release ever of low-income energy assistance funds. Connecticut received $8.8 million.

It is only the second time since the emergency reserve was created after the 1973-74 Arab oil embargo that oil has been ordered taken to deal with supply problems. The other was in 1991 when 21 million barrels were drawn just before and during the Persian Gulf War.