Gambling on Heating Oil Price
By TUX TURKEL
Mainers who heat with oil and have put off filling their tanks might want to procrastinate: The statewide average price has fallen 89 cents a gallon in the past two months, and key indicators suggest that it will continue to drop in the coming weeks.
Predicting the bottom of any market is nearly impossible, and with energy, hair-trigger volatility can make a mockery of the most educated guess. That said, several dealers agreed Wednesday that the oil market seems to have opened a window, at least between now and cold weather, when customers can find some relief from record prices.
“I believe prices will continue to come down, unless something drastic happens in the market,” said Les Thomas, owner of Cash Energy in Scarborough.
Thomas was selling oil for $3.24 a gallon on Wednesday, and said he expects it to be less expensive today.
Might he be selling $3-a-gallon oil this fall?
“Absolutely,” he said. “I don’t think it’s that far away.”
Some other discount dealers in Greater Portland are flirting with that benchmark, offering cash prices as low as $3.17 a gallon, according to Maineoil.com, a Web site that tracks prices.
While hardly a bargain, the prospect of $3 heating oil in Portland represent a stunning reversal.
On July 7, the average statewide price hit $4.71 a gallon, according to the biweekly survey from Maine’s Office of Energy Independence and Security. Some parts of the state were well above $5, a level that seemed unimaginable a year earlier.
Then prices began to tumble. On Monday, the statewide average fell to $3.82 a gallon. Prices ranged from a high of $4.10 in eastern Maine to $3.30 in the southwest.
The statewide average for kerosene, which reached $5.12 a gallon on July 7, was at $4.44 early this week.
Behind the slide is the unanticipated collapse of crude oil. Crude oil hit a record $147 a barrel on July 11. On Wednesday, during another chaotic day on Wall Street, crude went through a late- day rally, jumping $6 a barrel to $97.16. It had been trading below $92.
Despite Wednesday’s surge, many experts are watching for the price to fall below $90. A few months ago, some analysts were predicting crude could hit $150 or even $200 a barrel.
Wall Street’s financial meltdown and the faltering world economy are among the factors being cited for the flip.
Roughly 80 percent of the cost for a gallon of heating oil is linked to crude oil. So crude can serve as a barometer to help track the direction of heating oil.
“It’s not a guarantee,” said Jamie Py, executive director of the Maine Oil Dealers Association. “But it’s the easiest thing people can grab onto.”
Typically, Py and others said, there’s a time lag between the movement of crude prices and retail heating oil – both up and down.
It’s not unusual for crude to fluctuate on an hourly and daily basis. But by keeping an eye on the overall trend, oil heat customers can get some sense of which way retail prices may be moving in the days ahead.
“It still looks like it’s going down,” Py said Wednesday, “but you don’t know when it’s going to hit the floor.”
As with home prices and mortgage rates, market timing in oil is tricky business. Dealers advise against trying to plumb the absolute bottom.
“If you wait too long, you’re going to miss it,” said John Peters, president of Downeast Energy in Brunswick.
As prices become more volatile, roughly half of all Downeast customers are turning to price protection plans. A much smaller percentage buy fixed priced contracts. Those customers locked in this summer at prices that now seem unfortunately high.
Around the state, tens of thousands of people choose to ride the market and pay as they go. Peters and other dealers say that if someone calls and asks for guidance about when to buy, they politely decline. They don’t want to be in the forecasting business.
Having said that, Peters noted that Downeast’s current prices are roughly a dollar a gallon less than just three months ago. They dropped a dime from Tuesday to Wednesday.
So it’s a good time to fill a tank, relatively speaking, for anyone who needs oil and can afford it now or in the next few weeks.
But any relief has to be put into context. The average Maine home burns 900 gallons a year. A typical oil tank holds 275 gallons. A fill-up now might last only until the start of really cold weather.
On top of that, heating oil remains expensive, in historic terms. Wholesale prices Wednesday in New York Harbor were 72 percent higher than at the same time last year. Many people will struggle to pay heating bills this winter, in any event.
But those who can take advantage of current market conditions may benefit between now and mid-November, according to John Babb, president of J & S Oil in Augusta.
Babb, a member of the oil dealers’ board of directors, said weather is always a factor that influences demand and price. With the market falling just as autumn arrives, it’s a good time to buy before temperatures get very cold.
“Then, all bets are off,” he said.
Staff Writer Tux Turkel can be contacted at 791-6462 or at:
Statewide average heating oil prices, per gallon:
JULY 7: $4.71
JULY 21: $4.62
AUG. 4: $4.42
AUG. 18: $4.00
SEPT. 2: $3.98
SEPT. 12: $3.82
Source: Maine Office of Energy Independence and Security
To learn more about heating oil prices, go to:
* www.eia.doe.gov (click on “Petroleum”)
Originally published by By TUX TURKEL Staff Writer.
(c) 2008 Portland Press Herald. Provided by ProQuest LLC. All rights Reserved.