Asbury Park Press

Getting Heated Up

Higher crude oil prices are expected to give fuel-oil customers some sticker shock when they look at their heating bills this winter.

Asbury Park Press — Sunday, October 14, 2007

BY DAVID P. WILLIS
BUSINESS WRITER

If you've filled up your fuel-oil tank, you know the situation.

If you haven't yet, here's what's happening: Experts and analysts say you're going to pay more to heat your home this winter.

Oil prices are already high, and if the winter weather runs as cold as predicted, prices could reach record highs, according to the U.S. Energy Information Administration.

"We haven't received an oil delivery since March," said Millstone Township resident John Olsen. "I anticipate higher prices because of what you see on the news about the price of a barrel of oil being over $80."

Experts are sending out warning signals.

"It is going to be a very tough year for heating-oil consumers," said Wende Nachman, director of the New Jersey Citizen Action Oil Group, a cooperative that offers members discounts. "It has been a very unpredictable season so far this year."

Last week, the U.S. Energy Information Administration said the average household that uses heating oil is projected to pay about 22 percent, or $328, more than last year to heat their home this winter.

In the Northeast, the winter's fuel oil costs are forecast to rise to $1,827, up from $1,499, the EIA said.

Besides a 16 percent projected price increase from $2.50 to $2.89 a gallon, consumption is expected to rise about 5 percent because the weather is expected to be colder than last year's relatively mild winter, said Douglas MacIntyre, senior oil market analyst.

Meanwhile natural gas costs in the Northeast will rise to $1,212, up 10 percent from $1,101 last winter.

Locally, New Jersey Natural Gas Co. recently said winter heating bills will drop less than 1 percent, in part because of lower wholesale natural gas prices. In Monmouth County, 78 percent of homes are fueled with natural gas, according to U.S. Census estimates. In Ocean County, nearly 72 percent have gas heat.

Why are oil prices rising? It comes down to crude oil prices, said Brian Milne, refined fuels editor for DTN, an information company.

Growing demand abroad

Increased demand for crude oil around the world, including the United States and Asian countries such as China and India, is pushing prices up, Milne said. Meanwhile crude production is down, he added.

"We are drilling a lot more holes to find crude oil, but we are getting less of it," Milne said. Potential oil fields are in parts of the world that require more technology or deeper wells to reach the crude, he said.

Oil prices are unpredictable and no longer follow seasonal patterns, said Nachman of New Jersey Citizen Action. In the past, people predicted that oil prices would fall in the summer and rise for the winter heating season.

But that didn't happen last year or this summer, said Nachman. "In fact, they remained high. It has been another unpredictable season and consumers are paying for that."

It left suppliers with higher-priced fuel, said Nachman said.

"Right now, it doesn't look like the oil will be coming down anytime soon," Nachman said. "The market has fooled the industry and it has not done what everyone predicted it would do."

Meanwhile, even with the higher crude oil prices, Milne said, gasoline prices have not seen similar price hikes for a seasonal reason: the peak driving time is over.

One day last week, the price at Midway Ice and Fuel Co. in Neptune was $2.60 per gallon, up from about $2 a gallon a year ago.

"It is just not comfortable for the customer or the oil dealer," owner Dan DeSeno said. "We prefer lower prices because we have to purchase the oil ourselves and it puts a burden on us and, of course, it puts a burden on the homeowner."

An oil dealer's profit remains the same even with higher retail prices. "The way that prices are increasing, people on a fixed income are going to struggle this winter," he said. "Their fixed income I don't think was designed for this kind of increase in fuel."

Don't lock

Nachman recommends that consumers not lock in a price for oil. Instead, she said, customers should make a deal for a price cap. That way, the price will not rise beyond a certain price, but people can still take advantage of lower prices.

The wholesale market remains volatile, with crude oil prices the highest they have been entering in any other fall or winter, said Tom Kloza, chief oil analyst at the Oil Price Information Service in Wall.

On Thursday, wholesale fuel oil prices in New York City were at $2.25 a gallon, up from $1.65 a year earlier, he said. Retailers typically add 60 to 80 cents a gallon, Kloza said.

Retail prices can swing from $2.30 or $2.40 a gallon to as high as $3.30 or $3.40 depending on the weather and market conditions, he estimated.

"Chaos is kind of the middle name for oil markets these days," he said. "I am worried about heating oil. I think the government is worried about heating oil. I think suppliers are worried about heating oil."

Eric DeGesero, executive vice president of the Fuel Merchants Association of New Jersey, blames oil speculators for higher prices.

"You have factors that have little to do with supply and demand determining the price of oil," DeGesero said. "First and foremost, speculative interests and secondarily the declining value of the dollar have both worked in tandem to help drive up energy prices."

Trade and consumer groups are calling on Congress to require greater oversight and disclosure requirements among traders in the commodity markets.

"The actions they take on a daily basis have a direct impact on what we pay to heat our homes, fuel our cars and power our businesses," DeGesero said.

Control your costs

Nachman said there are ways to try to control your energy costs, such as:

Using a programmable thermostat and setting it to 68 degrees. Drop it lower when you are not at home or sleeping.

Making sure your home is properly insulated. Areas such as crawl spaces and the attic can bleed heat.

Servicing your oil burner before the heating season to make sure it is operating properly.

Using a budget billing plan to even out your payments.

Freehold Township resident Tom Apostle said he expects to pay less for heating costs this winter.

"I anticipate that I am going to be spending less now that all my home improvements have been kicking in as of last winter," Apostle said.

He has replaced his oil burner and the home's windows to improve his house's energy efficiency and lower his costs, he said.

"I remember when I first bought this house, it was like an energy sinkhole," Apostle said.

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