The Star-Ledger

Oil Forecast Brings Usual Chill

Early deals lose appeal as homeowners await price drop

The Star-Ledger — Tuesday, October 9, 2007

Star-Ledger Staff

By the time fall rolls around, many homeowners usually have locked in prices for home heating oil, a precaution that protects them from price spikes should a colder-than-normal winter squeeze supplies.

Not this year.

With the price of home heating oil rising to $2.90 per gallon last week amid forecasts it might soon top $3, both consumers and oil dealers are shying away from early-lock-in deals, hoping prices will drop later in the fall and winter as they did the past two years.

It's a real gamble.

Some industry experts predict consumers could end up paying record prices for home-heating oil this season, with one estimate projecting the cost will run as much as 28 percent higher than last winter. The average family will pay about $400 more for home-heating oil than last year, for a total of $1,834, according to the National Energy Assistance Directors Association.

The projection, based on preliminary heating oil estimates issued by the Energy Information Administration in September, probably is conservative, given the rise in crude oil prices, which have been hovering around $80 per barrel, some $9 higher than what crude was trading at only a month ago. With lower inventories of the distillate from which fuel oil is made, the EIA is likely to project even higher prices when it comes out with its official winter forecast this morning, experts said.

"It is going to hurt the consumer," said Wende Nachman, director of the New Jersey Citizen Action Oil Group, a cooperative that buys home-heating oil for about 3,000 members. By buying in bulk, the cooperative can offer members discounts of between 10 percent and 15 percent off the market price, she said.

Even so, Thomas Parente, a member of the cooperative who lives in Montclair, expects he will end up spending between $1,700 and $1,800 to heat his family's home this winter, about $200 to $300 more than he spent in 2006.

"It's still the best deal to be had out there," Parente said of the cooperative, which he joined seven years ago.

Unlike past years, however, the cooperative has yet to lock in a price, hoping prices would fall on OPEC's decision to ramp up production of crude oil, she said. If prices do not drop soon, the group hopes to lock in a price cap close to what it had last year, $2.549.

"Prices were high this summer," Nachman said. "It always is a gamble, but in the past you could count on certain trends – prices would be low in the summer and rise in the winter. It doesn't seem like past trends matter anymore."

Fuel oil dealers are just as confused.

"This kind of market doesn't make any sense at all," said Sal Olivo, a co-owner of the family-owned Blue Ribbon Fuel in Nutley.

Doug McIntrye, a senior oil analyst at the Energy Information Administration, said the unusual market conditions are tied to a sharp rise in worldwide demand for crude oil, as well as lower inventories of distillate, the product used to make home-heating oil and diesel fuel.

And that's not all. Eric DeGesero, executive director of the Fuel Merchants Association of New Jersey, cites a congressional investigation that found speculators in the crude oil market added between $20 and $25 to the cost of a barrel of crude oil. His organization has called on Congress to address the problem by subjecting trading of energy futures to more oversight by regulators.

Others, including Jim Pierson, owner of J.W. Pierson in East Orange, say consumers also are being hurt by the weakness in the U.S. dollar, the currency used to pay for crude oil. While other oil merchants have been holding back, Pierson's company is offering customers both a pre-pay, lock-in price as well as a capped price for home heating oil.

"When people started hearing about crude oil trading for $80 per barrel, they started to sign up," he said.

While heating oil prices could hit record highs, homeowners who heat with natural gas could see a drop in prices this winter.

Three of the state's four gas utilities – Elizabethtown Gas, South Jersey Gas and New Jersey Natural Gas – will charge customers as much as $3 less per month under rate plans filed with the state Board of Public Utilities.

Public Service Electric & Gas, the state's biggest gas utility with 1.7 million customers, has asked for a 2 percent increase in what residential customers pay, or about a $3-per-month increase.

Copyright 2007 The Star-Ledger

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