The price of oil

The price of crude has breached $100 per bbl, with some change to spare ‘ about $10 worth of change, so far. Much of the buzz with this development is on the potential of $4 per gallon gasoline, but attention is being paid to the impact on home heating with the average gallon of fuel topping an astronomical $3.68. As the Energy Information Administration noted in the March 12 This Week in Petroleum: ‘Residential heating oil prices leaped higher for the fourth consecutive week during the period ending March 10, 2008, the 23rd week of the survey this season. The average residential heating oil price set a record high once again with an increase of 12.8 cents last week to reach 367.8 cents per gallon, which was an increase of 118.2 cents from the 23rd reporting period last year ending March 5, 2007. Wholesale heating oil prices rose 15.4 cents to reach 310.2 cents per gallon, which was an increase of 121.7 cents compared to last year.”

As a counterpoint, for those competing against propane, or selling it as a co-offered fuel, the news was practically the same: ‘The average residential propane price reversed its course minutely, decreasing 0.1 cent to reach of 260.3 cents per gallon. This was an increase of 57.4 cents compared to the 202.9 cents per gallon average for the same period last year. Wholesale propane prices fell by 9.4 cents, from 169.1 to 159.7 cents per gallon. This was an increase of 52.0 cents from the March 5, 2007 price of 107.7 cents per gallon.”

Fortunately for heating oil and propane dealers (but not energy customers), the price of natural gas has similarly trended upwards to a notable degree this year. As a recent EIA Natural Gas Weekly Update reports: ‘The Henry Hub price traded at $9.69 on Wednesday, March 12, resulting in a weekly increase of $0.32 per MMBtu, or 3.4 percent. Twice during the report week, the Henry Hub average price exceeded $9.80 per MMBtu, representing the highest prices at the hub since January 3, 2006, when the Henry Hub price traded just below $10 as prices were easing off record highs following Hurricanes Katrina and Rita. Other spot prices along the Gulf Coast in Louisiana and Texas also registered increases between $0.07 and $0.32 per MMBtu, resulting in an average regional price of $9.61 in Louisiana and $9.45 in East Texas yesterday (Wednesday, March 12).”

And yet, the mainstream media is, for a change, generally focusing on players other than the ‘gouging” fuel marketer or even ‘big oil” to some extent. As noted in a recent CNN article ‘Oil reaches new highs” on March 11, 2008: ‘This surge to new records is driven by the speculative and large funds moving money into commodities. It’s primarily a U.S. dollar and inflation play by financial investors,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

However, market volatility can easily be a two-way street, as the article noted: ‘Many analysts believe the rise in crude prices is not supported by the market’s underlying fundamentals, noting that supplies are generally rising while demand is falling.

‘Crude oil futures’ relentless advance is a price bubble and certainly, a sharp pullback cannot be ruled out,’ Shum said.

‘What may at some point trigger investors to exit oil is perhaps a build up of poor economic data out of the U.S.,’ he added. ‘That may be enough of a trigger to refocus attentions on the U.S. and slow oil demand growth there.'”

So, relief for both customers and the industry may soon arrive. Perhaps a bit too late for the heating season though, and perhaps as a result of economic concerns that can hardly be considered good news.

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