Oil Boom Finally Takes Effect on Heating Costs

The convergence of an oil boom in America – along with several other favorable circumstances around the world in the petroleum industry – have local heating oil customers looking at hundreds of dollars in savings this year, and perhaps happy to see (and not dreading to see) the oilman pull up in front of the house.

For about a decade, heating oil prices have spiked and have not returned to their previous levels, though there was some respite during the recession of 2008. Heating oil customers saw prices approaching and exceeding $4 per gallon for successive years, with $3 per gallon being a bare minimum.

All that has changed dramatically this year, with crude oil (the major ingredient in heating oil price increases or decreases) nose-diving  last summer and this fall – going from around $90 per barrel to Monday’s price of $66 per barrel. Trade industry experts locally indicate that prices are already 44 cents lower on average per gallon than last year, and local dealers report customers are ordering more oil each visit and more are paying on delivery.

“Most of us believed we would never see anything like this,” said Michael Ferrante of the Mass Energy Marketers Association (MEMA). “A couple of years ago I though we would never see crude oil go below the $80 per barrel. I thought we had kind of hit plateau that we would never go below. Now, here we are, well below that. It’s fantastic for consumers and businesses and dealers. It’s December and we’re seeing prices at 40 cents below a year ago. That’s significant savings and it could go down even more.”

Dealers such as Jon Hartman of Northeast Oil have watched prices stagnate between $3 and $4 per gallon for the last several heating seasons. This year, Hartman already has advertised prices below $3, with this week’s price at $2.56 per gallon – which is 17 cents less than his advertised price last week.

“It’s been a mild winter so far so it’s been slow, but people are liking the prices now a lot more than last year,” he said this week. “People are certainly getting more oil each delivery. Instead of the minimum delivery of 100 gallons, they’re buying at least 150 gallons or more because it’s so much cheaper. It’s also better for my business because it’s cheaper for me to buy oil and I can pass that savings on to my customers. Hand in hand, gasoline prices are down and I am saving money on gas, and that I can pass along too. All of that is savings for customers, who in turn can decide to spend that money out shopping or out eating, or even taking a drive up to Kittery or somewhere to shop.”

He said some of his larger customers who have dual natural gas/heating oil systems are choosing to use oil this year for the first time in a long time. That, he said, is a good piece of business for him.

“I have customers who have big buildings and some time ago they switched to systems that can use natural gas or oil,” he said. “This year they’re buying oil from me because it’s cheaper. They’ve gone back to using oil because it’s much cheaper now.”

The cause for the drop in heating oil prices is something that was somewhat anticipated last year, and for some, the year before as the process of hydraulic fracturing (fracking) helped surge oil production in Pennsylvania, North Dakota and Texas. That production has only increased more lately, making the U.S. one of the largest oil producers in the world – something that was not even considered only a few federal election cycles ago.

According to the U.S. Energy Information Agency’s (EIA) outlook in April, the U.S. is expected to produce 9.6 million barrels per day of crude oil by 2019. That is 3.1 million barrels more than in 2012. Of that 3.1 million increase, some 2.5 million barrels per day will come from fracking.

All of it leads to a huge increase in the supply, with much of it coming from the U.S. That glut in supply has led, in part, to the lower heating oil prices for folks in Everett, Revere and Chelsea.

“I think that’s certainly why crude oil prices are lower,” said Ferrante. “There is tremendous new production in other parts of the world and especially here in the U.S. Most experts believe we will become the number one exporter of fuel and energy in the very near future. The heating oil price still could move up if we have a very, very cold winter  or if there is a storm and it disrupts the distribution. That said, I’m very optimistic about the winter and think prices will be much more affordable for consumers and our dealers as well. Dealers don’t like high prices. They don’t benefit from them…They end up with huge receivables and at the end of the season they’re chasing money from good customers.”

Susan Grissom of the EIA said the federal agency was preparing to release a report this week with detailed forecasts regarding heating oil and other winter heating fuels. Much of it, she said, was favorable for consumers. The reasons, she indicated, are many, and world events in places as far away as Libya are helping heating oil prices locally.

“Increased U.S. production is certainly a part of the story and the other part is crude oil production in other parts of the world,” she said. “For a substantial amount of time, there was a substantial amount of production off line – specifically Libyan production – because of strife in the region. Much of that has returned to the market…In this market you have more supply and less demand and that has led to lower prices here. And yes, part of that increase in production is the U.S. production.”

Other reasons she listed for lower demand is that there are more fuel efficient vehicles worldwide using less gasoline, and that economies in Asia are not doing as well as expected – leading to far less demand for oil. Additionally, established oil producers like Saudi Arabia are taking less of a leadership role in worldwide decisions about production.

That said, she indicated there are still many unknowns in this less expensive new world of petroleum and heating oil.

“There are lots of people watching the oil markets now and no one is quite sure how it’s going to work out,” she said.

One certainly for Ferrante is that there is stability in the price now – no more volatility – and prices seem to want to remain lower than anyone anticipated.

“The typical world events that used to send oil prices higher aren’t having the same effect this year,” he said. “We’ve had significant things such as the terrorist groups in Iraq and Syria. In the past, that would have sent crude oil and heating oil sky high…The basic elements that have troubled our industry have not taken effect. It’s an interesting dynamic and one most of us did not and could not have anticipated…We never expected the price of crude to be this low in December of 2014. It’s totally beyond what we believed could happen.”

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