Despite a Colder Start To Winter, Oil Is Plentiful
With electricity out of favor, more homes are using oil, natural gas
WHEN the temperature hit freezing last week in Bridgeport, Conn., oil supplier John Santa felt very warm. ``I think we're going to see a cold winter following some abnormally warm winters,'' predicts Mr. Santa, who owns Santa Fuel Inc.
Winter fuel supplies are expected to be adequate if the winter is normal. ``In talking to the marketers, no one is anticipating any problems,'' says David Morehead, a spokesman for the Petroleum Marketing Association of America, a trade group.
This optimistic forecast is likely to be repeated when the Department of Energy hosts its annual forecast tomorrow for the winter months. ``Ignoring any unusual weather conditions, there is plenty of oil around,'' says John Lichtblau, chairman of the Petroleum Industry Research Foundation Inc.
Oil producing countries recently met in Vienna to try to stabilize price and supply. However, the price of crude oil on the spot market has remained below last year's levels. Oil from the Brent field in the North Sea, for example, sells at $17 a barrel compared with $20.60 a year ago.
The price of distillate, the form of oil used in burners, has also fallen to 54 cents a gallon. The price has fallen slightly for consumers, with oil selling for $.99 a gallon compared with $1.02 a year ago.
There is also likely to be plenty of natural gas available for the winter. Last week, the American Gas Association (AGA) predicted that supplies would exceed demand for the heating season's peak month, most likely January. During that time, Canadian and liquefied natural gas imports may be used as supplemental sources.
The price of natural gas, however, is expected to rise as winter demand increases. ``If we have a normal winter, bills will be somewhat higher for natural gas,'' says Mark Stultz, an AGA spokesman. The group says prices, which have been at record lows, will rise because of a new rate design which permits higher costs to be passed on.
Last year, 54 percent of the new homes built in the Northeast used natural gas for heating, compared with 30 percent for oil and 16 percent for electricity.
If there is a spate of extremely cold weather, energy prices can react quickly. In 1989, a severe cold snap in December pushed the price of residual fuel oil up sharply. Prices broke in January after the weather moderated.
``What created the problem was the mechanics of getting the supply to the consumers,'' says Edward Murphy, director of finance, accounting, and statistics at the American Petroleum Institute in Washington. With an increasing number of homes using natural gas, Mr. Murphy says it is less likely a cold winter would halt deliveries. Natural gas, delivered by pipeline instead of barge or truck, is influenced less by the weather.
So far this year, the weather has been colder than normal. In Bridgeport, Mr. Santa reports that September was 10 percent colder (in terms of degree days) and 3 to 4 percent colder in October.
Although there is plenty of heating oil around, Mr. Morehead reports that there are spot shortages of low-sulfur diesel which is mainly used by trucks. This is the result of new federal regulations, effective Oct. 1, which require that high-sulfur oil used for home heating have a blue dye and that low-sulfur be clear. The government regulation was adopted for tax reasons: diesel is subject to a new 24.3 cents a gallon federal excise tax but home heating oil is exempt. The government's tax changes coincided with a greater demand for low-sulfur fuel, which truckers were required to use for environmental reasons starting Oct. 1.
According to Morehead there have been distortions as suppliers have tried to empty tanks of high-sulfur fuel prior to the enactment of the new regulations. The distortions have caused prices to run up by as much as 30 cents a gallon in northern California and 28 cents a gallon in southern California.