Oil prices heat up fears of costly winter heating season
Just a few weeks ago, it looked as though homeowners who heat their homes with oil would be getting off cheap this winter. After last year's record prices, the cost per gallon of home-heating oil had retrenched to much more reasonable levels in recent months, among the lowest seen in years. Analysts said a flood of oil in world markets and healthy stores of sweet crude in U.S. warehouses meant oil prices would be kept in check.But with prices now expected to hit $80 a barrel and gush even higher, it looks as though dreams of a cheap winter heating season are slipping away.
Of course, it's not only the price of home-heating oil flaming up; it's gasoline, too. As the cost for each barrel has moved higher in recent days to a touch over $79 a barrel on Monday from $70 a barrel in just a matter of days, signs displaying the price for various grades of gasoline at the local service station have changed frequently -- each time adding a penny or two to each gallon of the stuff the helps drive the U.S.'s consumer economy, by keeping shoppers in their cars and out at the malls.
AAA reported that the national average price for regular grade gasoline hit $2.56 a gallon -- the highest price seen in several weeks, according to a daily survey conducted by the auto club.
So what's the cause behind the upward trend in oil prices and how did analysts get it so wrong? A weak dollar combined with a report last week noting a surprising drop in the number of barrels of oil the U.S. has on tap has caused oil futures to rally. Crude oil prices also appear to be riding Wall Street's coat tails. The Dow Jones industrial average ($INDU) surpassed 10,000 last week, signaling that the economy is gaining momentum and increased demand for oil products is likely not far behind.
"Optimism from equities still seems to be channeling into the oil market," Thina Saltvedt, an analyst at Nordea Bank AB in Oslo, told Bloomberg News. Consumer demand for oil remains weak, despite better economic news, Saltvedt said, adding that while oil prices may top $80 a barrel, they won't stay there.
The rally in oil prices is based much more on hope than reality, said Michael Lynch, president of Strategic Energy & Economic Research. He told the Associated Press, "There's so much oil out there that people are going to start using it for their pancakes."
Homeowners in the Northeast, where the bulk of heating oil in the U.S. is used, and drivers across the country are banking that those sentiments are on the money. Otherwise, higher prices for oil products could put a damper on holiday sales, tanking any promise of a happy new year.
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Reader Comments (Page 1 of 1)
10-19-2009 @ 10:45AM
Ron said...
Enron was the Bad Guy responsible for high energy costs back in 2000. NOW it is Goldman Sachs & Morgan Stanley.
The ball was passed to them after the deregulation of the Futures markets. And they are running for the end zone!!!
Touchdown!!!!
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10-19-2009 @ 11:10AM
bill said...
what is the big thing behind this, greed. obama had better get with his arab buddies and get this stopped before it is to late
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10-19-2009 @ 10:55AM
Jeff said...
Oh, sure...some people get something resembling a break, and the vultures are right there ready to stamp it out. It seems that for the citizenry of this country, no good deal goes unpunished. Rats!
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10-19-2009 @ 12:06PM
Steve said...
Goldman Sachs and all the Hedge Fund Traders are alive and well under Obama. Traders make money and the Government gets higher taxes, it is a beautiful thing unless your just a mope tax payer. Wait until cap & trade!!
Hope and NO Change
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10-19-2009 @ 12:10PM
justlegalizeit09 said...
cmon Obama.... we are being scammed here.... do something about it!!!! p.s. Thanks for the new medical marijuana policy!!!
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10-19-2009 @ 12:16PM
Dan said...
Don't blame just Obama for the rising oil prices. Remember how the democrats stopped US oil drilling in 2000-2001 when the problem could have been handled with US Oil development. As long as we are prohibited from using our oil and compelled to buy our enemy's oil, our economy is weakended because we send our money to our enemies and we are weaker because they use that money to invest in weapons and finance terrorists to harm us.
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10-19-2009 @ 12:37PM
John Feltman said...
The present price of crude and gas at the pump are not functions of supply and demand. Crude Futures are manipulated by speculators buying on 5% margin that has completely distorted the supply and demand,refining capacity equation. When crude hit $147/barrel last year,it quickly drained off about 600 billion dollars of buying power and was a main component of our present economic crisis.
Some of the Hunt family of Texas went to jail in the 1980's
when they were indicted for doing the same thing with the Silver Futures that drove Silver contracts above $40/ounce.I do not know why similar actions have not been taken by Federal authorities with crude futures, but it has become quite evident that the main culpit in failing to respond is political incompetence. They just don't know how to do the math. Crude should not be more than $40/ barrel in the present market enviornment and with present refining capacity. If crude is allowed to be manipulated above $90/barrel and higher,again, this country will not recover from its present depressed state and will fall into a depression from which this country will not recover.And if Federal investigators fail to intervene in this obviously corrupt Futures market pricing mechanism,unemployment will rise precipitiously and civil unrest will reach levels never seen in this country. And no stimulus or government bailouts will save us from the consequences of our own ignorance in allowing such incompetence and corrupotion to prevail. Our enemies do not need bullets and bombs to destroy this nations ability to maintain its economy which gives us the ability to service our nation's debt,secure the value of our currency, and assure the rights of life ,liberty and the pursuit of happiness that we have become accustomed. American ignorance will do it for them. Over two years ago I forecast our present economic crisis. I was right then and ,unfortunately, I'm right now. John Feltman
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10-19-2009 @ 1:55PM
Greg said...
Oh, John, please! Oil price at $147 a barrel put us in our present economic position? I'm willing to entertain a discussion of the July 2008 oil price spike as a co-factor in a triggering effect, but not as a primary cause, and certainly not a major cause. The price spike, which exceeded $60 a barrel on 5/15 and returned below that price on 10/31 cost us an extra $28 billion or so, figuring 12 million barrels a day for that period. Mortgage equity withdrawals—which had extracted over $5 trillion of value from bubble-powered house prices—makes a more reasonable candidate for primary cause, and the housing bubble that started to decline in 2006 and had already lost 20% by mid-June 2008 as a reasonable trigger.
But though that would have messed us up quite a bit, the loss of $5 trillion in value from MEW's held by specific US banks would not have done the global damage that we see. For that we can point to the unregulated proliferation of sub-prime lending (which circles back to that easy $5 trillion of MEW) and, critically, the blending of those sub-prime mortgages, also unregulated, into innovative investment instruments like mortgage backed securities (MBS), collateralized debt obligations (CDS) (which also circle back to the easy availability of sub-prime mortgages), and over $50 trillion of credit default swaps (CDS)—which were supposed to insure against defaults but turned like a Frankenstein Monster when housing values collapsed—which then spread the damage world wide.
So, we're talking about some $50-$60 trillion dollars of value disappearing from the world economy through a convoluted, intertwined set of consumer and government practices mixed with startlingly new investment practices and a closely interrelated world economic engine; and you're talking $27 billion in oil price increase.
It would be nice to wrap the causes up into a simple package of spiking oil price. For one thing, it would surely get this nation on track to quickly abandon petroleum as a significant energy source—and face it, all you oil bugs, no matter how much oil there is and how much of it we drill it is very unlikely that production going forward will keep up with demand, and it is certain that oil production costs will rise, so that price per barrel costs above $150 are a certainty to occur again in the near future.
10-19-2009 @ 2:04PM
Greg said...
One other comment needs be made in opposition to your claim that crude should be no more than $30 a barrel. I suppose that would be a possibility if all our crude were supplied from Saudi and Kuwait fields where production costs are under $10 a barrel. What about the Bakkan oil, the Canada oil sand oil, the South American off-shore fields, where production costs are in the $50-$75 a barrel range. At $30 these operations shut down. At $30 nobody looks for new fields in difficult to work places. At $30 a barrel we are stuck with existing oil production facilities, and globally that production is dwindling by 1% to 5% a year.
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10-19-2009 @ 2:14PM
turner5ofvinla said...
Back when Mr.Bush was President both Hillary and Obama told what
they would do to keep the price of oil down, but like everything else
they bragged about how they would handle things we find that talk is cheap.
Obama ran his mouth about how he would handle OPEC. One of the first
things he did was stop the plans for offshore drilling. He said that this was to save the damage to the environment, yet foreign countries can drill off our coast. If our companies damage the environment then why
doesn't foreign companies alo damage it? This administration is a very sick joke. At least I have not been disappointed, because I never believed that he knew what he was talking about to begin with.
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