Despite attempts to avert a winter fuel crisis by releasing additional oil from the nation's Strategic Petroleum Reserve, the government said Friday that consumer's heating bills are likely to be significantly more expensive this winter than they were a year ago.
In a report released Friday, the
Energy Information Administration
said it expects household heating oil bills to be 25% higher than they were last winter and natural gas heating bills to jump 44%. The agency, a branch of the
Department of Energy
, cited abnormally low heating fuel inventory levels and decade-high crude oil prices.
Higher Prices to Hit Home
That means, for example, that a typical household in the Northeast may pay $189 more for heating oil, this winter, while a household in the Midwest may pay $240 more for natural gas, the agency estimated.
While the EIA said President Clinton's order two weeks ago to tap into the Strategic Petroleum Reserve helped bring down the average cost of oil by about $3 a barrel last month, the agency estimates just one-third of the 30 million barrels of crude oil released from the nation's reserves will make it to market by the end of the year.
Even if temperatures remain in a normal range over the upcoming months, EIA analysts said demand for heating fuels should be stronger than last winter, which was the warmest on record. Yet, domestic heating oil inventories are much lower than a year ago.
On the East Coast, where three-quarters of the nation's heating oil is consumed, the EIA said stocks are half of what they were last year. With refineries operating at or near capacity, there is little hope of replenishing stocks to last year's (or even normal) levels before winter.
Target of Mid-$20s -- a Wishful Thought
Meanwhile, crude oil prices show little sign of retreating back to the mid-$20s targeted by both the administration and the
Organization of Petroleum Exporting Countries
. In September, the EIA said the price of crude oil averaged $33.88 per barrel, the highest monthly average since the Persian Gulf War. Before
announced plans to tap into the nation's Strategic Petroleum Reserves, the price had climbed just short of $38 a barrel.
The EIA projects oil prices will remain above $28 a barrel for the rest of the year, declining gradually into the mid-$20s next year.
Crude oil for November delivery settled up 33 cents, or 1.1%, at $30.86 on the
New York Mercantile Exchange
Friday. The November heating oil futures contract settled up 0.22 cents at 93.3 cents. Natural gas for November delivery settled down 14.4 cents at about $5.
Oil prices fell about $1 a barrel to around $31 on Thursday after the
Department of Energy
announced it had awarded
contracts to exchange all 30 million barrels of crude oil
released nearly two weeks ago from the Strategic Petroleum Reserve. The 11 companies awarded the contracts agreed to return more than 31.5 million barrels to the nation's reserves next spring.
Oil From Japan
Also helping to push down heating oil and crude prices Thursday were reports that Japan's private sector oil companies will export stockpiles of gas oil, which is used as heating oil and diesel fuel.
But Phil Flynn, energy analyst at Chicago-based
, said that the EIA report confirms that, while the release of stockpiled oil from the nation's reserves and from Japan may be having a "psychological impact" on prices, tapping into the countries' reserves is not a long-term solution.
"We know that supply is going to be tight," Flynn said.
Francois Trahan, strategist at
Brown Brothers Harriman
, said the situation is worse since we're heading into a high-demand season. According to the EIA report, natural gas demand is expected to be about 6% higher this winter than a year ago, and Trahan believes demand for natural gas is likely to grow even more over the long term as it is the cleanest burning fossil fuel, providing an alternative for consumers to heat their homes and helping businesses be environmentally friendly.
Trahan isn't willing to speculate on whether oil prices have peaked for the year, but believes the oil cycle is in the late stages. He said his firm has been overweight in the energy sector since last October. Trahan's top picks had been geared at integrated oil companies, but he shifted to oil services and drilling companies after OPEC began increasing its supplies.
"They are late cycle performers and tend to react to the level of prices, not the direction," Trahan said. "Drillers would continue to outperform while integrated oil companies are more sensitive to oil prices -- when prices peak, they underperform."
Prices are expected to begin drifting downward over the next several months as OPEC's exports increase.
Under a new agreement, OPEC raised its production output ceiling to 26.2 million barrels from 25.4 million barrels daily beginning on Oct. 1.
But, since it takes about 45 days to ship oil from the Middle East, and another month to refine it into heating oil, the additional supplies are not expected to ease prices much before early next year.