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Crude Prices Fail to Translate into Lower Heating Costs
By Timothy C. Barmann, Providence Journal, September 17, 2008
(http://www.projo.com/business/content/bz_winter_heating_costs17_09-17-08_52BJV5U_v22.1b2c832.html)
Although crude oil prices have fallen sharply from their peak this summer, Rhode Islanders may be in for another winter of record-breaking heating costs.
The average price of home heating oil in Rhode Island on Monday was $3.749 a gallon, up 6 cents from the previous week and $1.34 from a year ago, according to the Rhode Island Office of Energy Resources.
If the current average price remains unchanged, winter heating costs will set another new record high. A household that uses 666 gallons of oil will pay $2,555 for the heating season that runs from July 1, 2008, to June 30, 2009, according to calculations by The Journal.
That is $218, or 9.3 percent, higher than last year’s average of $2,337, and 89 percent higher than the $1,350 it cost five years ago.
The U.S. Department of Energy offered a less optimistic projection last week.
The department’s Energy Information Administration predicted that heating oil will average $4.13 a gallon this winter, about 25-percent higher than last heating season. Under that scenario, the average household that uses oil as its main heating fuel will pay an extra $585, or 30 percent more, than last winter.
For those who use natural gas, it will cost a typical National Grid customer $1,615 for heating with 922 therms of energy, under current rates. That is $130, or 8.7 percent, higher than the typical cost last year of $1,485. (666 gallons of heating oil has the same energy content as 922 therms of natural gas.)
National Grid has filed two separate requests to change natural gas rates –– one to increase distribution charges and the other to lower natural gas charges. The increase would raise gas bills by about 5 percent, while the decrease would lower the bills by about 5 percent. If both are approved by the Public Utilities Commission, they would essentially cancel each other out.
Of the 8 million households in the United States that use oil for heat, 6.2 million, about 78 percent, are in New England and the Central Atlantic states, according to the U.S. Department of Energy. In Rhode Island, about 42 percent of all households, or about 172,000, heat with oil, according to the 2000 U.S. Census. About 46 percent use natural gas.
Crude oil has been falling as demand for gasoline and other petroleum-based products have declined. Energy analysts also attribute the decline to concern that the current economic slowdown will push down demand even further.
The turmoil in the financial markets on Monday and yesterday pushed crude oil down by about $10 a barrel. Yesterday, crude for October delivery fell $4.22, or 4.4 percent, to $91.49 a barrel on the New York Mercantile Exchange. It was the lowest price since February.
Analysts said that preliminary reports indicate that Hurricane Ike didn’t have the severe impact on domestic oil production that was feared before the storm blew into Texas on Saturday.
But the storm has disrupted drilling and refining operations, which could push gasoline and heating oil prices higher. There were reports of flooding and power failures at many refineries along the Gulf Coast.
As of Monday, 78 percent of the manned platforms and 68 percent of the rigs in the Gulf of Mexico were shut down in anticipation of the storm, according to the U.S. Minerals Management Agency.
Offshore drilling: The House approves a Democratic-sponsored bill to allow offshore drilling, left, in waters 50 miles from shore almost everywhere from New England to Washington state as long as a state agrees. The existing ban on drilling in the eastern Gulf of Mexico would remain in place. Republicans say the measure does not go far enough.