The heating oil business these days is so difficult to predict that third-generation distributor Mike Adams some days wishes he hadn't been born into it.
"Everybody is calling, but it's hard to see which way the market's going," said Adams, owner of Adams Petroleum in Emsworth. "I can't tell people what to do."
No one is certain which way heating oil prices will move as the official start of the heating season on Oct. 1 draws near. In mid-August, the Department of Energy's Energy Information Administration, in its monthly short-term energy outlook, projected that heating oil prices on average would jump some 31 percent to $4.35 a gallon this heating season, from $3.31 a gallon one year ago. Adams currently is delivering heating oil priced in the mid-$3.60 range.
But the projections were produced before Hurricane Gustav missed or did only minor damage to crude oil-related equipment in the Gulf of Mexico. Traders took reports of little damage as a sign from above and promptly bid down future heating oil prices.
"The industry is in such a state of flux, it's possible our August forecast may be out of date, and we will be revising last month's projections when the new outlook comes out on Sept. 9," said Neil Gamson, an Energy Information Administration economist. "Crude today (Tuesday) already fell about $9 a gallon, and heating oil was down about 23 cents a gallon."
Yesterday, crude for October delivery closed down $5.75 to settle at $109.71 a barrel on the New York Mercantile Exchange, after earlier dropping as low as $105.46. It was the lowest trading level since April 4, just before oil began an unprecedented march above $147 per barrel. In addition, heating oil futures fell 11.83 cents to settle at $3.0736 a gallon.
Adams said he worked Labor Day loading his delivery trucks with heating oil because he was afraid prices would leap and customers would be calling, but that didn't happen.
Many experts and industry watchers aren't convinced a day of falling prices will hold once cold weather hits Western Pennsylvania. The nation's 10 million oil-heated households are concentrated in the Northeast.
"There basically are three reasons why heating oil prices will climb," according to Kent Moors, a Duquesne University professor and director of the school's Energy Policy Research Group. "No. 1, this country doesn't have enough refinery capacity for medium and low distillates, which includes heating oil."
Second, Moors maintains, refinery owners for some time have been withholding about 10 percent of refinery capacity to keep margins, or the price for crude oil and refined products, high. The U.S. refinery utilization rate is below 90 percent.
"Reason three is that other parts of the world have an overabundance of heating oil, Russia being one of those areas, so we're importing more and more heating oil," Moors said.
Adams said he doesn't have any hard numbers, but he believes a number of customers have switched fuels, to natural gas or electric, perhaps to get a more stable price.
Energy trader and analyst Phil Flynn, of Alaron Trading in Chicago, calls the heating oil situation a "tale of two markets."
"We are down from the big highs of earlier in the year, but are still higher than where we were one year ago," Flynn said.
Flynn predicted area heating oil prices "should" fall below $3 a gallon in the near future, "but we can't have anything else go wrong."
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