Crude oil prices eased slightly on Wednesday after new data showed that domestic oil inventories increased for the first time in nearly four weeks. But the boost in oil stocks was not likely enough to replenish dwindling supplies of heating oil in time to prevent a price spike once the temperature drops.
According to data released late Tuesday by the
American Petroleum Institute
, an industry group, crude oil inventories grew last week by about 3.4 million barrels. The buildup was confirmed by the
Energy Information Administration
, a division of the
Department of Energy,
which released figures Wednesday showing a 1.1-million barrel increase for the week -- the first buildup since the week ending Sept. 1.
Gasoline stocks also increased, rising by 5.16 million barrels, according to the API, which also revised last week's data up by nearly 1 million barrels. That's a net two-week increase of more than 6 million barrels. The EIA reported an increase of 5 million barrels in inventory. Markets had anticipated a slight buildup, but much less than the actual figures showed.
The two agencies diverged on their distillate stock data, with the government reporting a 700,000-barrel decrease in inventories of distillates, which include heating oil and diesel fuel, while the API estimated stocks rose by 336,000 barrels last week. Refineries were running just short of capacity again last week, with utilization estimated between 94.4% and 97%.
With refineries operating so close to capacity and distillate stocks still significantly lower than in past years, industry analysts say it is likely too late to prevent higher heating oil costs this winter.
Already, preliminary data from the EIA shows heating oil prices are nearly 50% higher than they were a year ago. The average residential heating oil price nationwide was $1.46 a gallon on Oct. 2, compared to an average of $1 a gallon in October 1999. In New York, prices are even higher now, at nearly $1.60 a gallon on Oct. 2.
Late Wednesday, the contract for November delivery of crude oil on NYMEX was down 55 cents at $31.52. November delivery of heating oil was down 0.0025 cents at 96.10 cents per gallon. The contract for November delivery of unleaded gasoline was down 0.0275 cents at 85.30 cents a gallon.
Heating oil inventories nationwide are still about 36% below their levels from a year ago, according to Thorsten Fischer, an economist at
. The situation is even worse in the Northeast, which depends most on heating oil, where stocks are about 70% below their levels from a year ago.
With refineries continuously operating at or near full capacity, the stocks can't be rebuilt at a much faster rate. Making matters worse, many refineries are scheduled for routine fall maintenance work, which puts further limits on production over the next few months.
"If there is an early spell of cold weather or an unusually severe winter, expect heating oil prices to skyrocket," wrote Fischer in an analysis Wednesday. "In any event, heating oil prices will remain high."
Meanwhile, demand for heating oil is 14% higher now than average levels a year ago, at 4.06 million barrels a day, according to London-based
. The firm attributed the unusually high demand to heavy consumer restocking ahead of winter, which means demand may drop off sharply in the coming months, putting downward pressure on prices.
GNI also noted that several refiners have decided against placing orders for the 30 million barrels of oil
ordered to be released from the nation's
Strategic Petroleum Reserves
last week in an effort to rein in runaway oil prices. Many of the refiners that declined explained that they were already producing at, or very close to, capacity.
That means the extra crude oil from the reserves and the estimated 300,000 additional barrels per day or more from the
Organization of Petroleum Exporting Countries
production increase (which went into effect on Oct. 1) won't likely add much more heating oil to the market.
OPEC announced last month that it would raise its output target to 26.2 million barrels a day. But analysts and industry groups estimate that the actual increase is likely to result in a net daily increase of 100,000 to 300,000 additional barrels -- far short of OPEC's goal of 800,000 additional barrels a day -- since many OPEC members are already producing at or above capacity.
Meanwhile, though the president's
decision to tap into the nation's oil reserves helped bring prices back below $32 a barrel for much of the past week, few see it as more than a short-term measure aimed at easing consumers' concerns over tight oil supplies and skyrocketing prices.
"It was never designed as a tool to manipulate prices," said Calvin Cobb, an energy specialist and vice president of
Cap Gemini Ernst & Young
. "This was a psychological thing for consumers. It's not a permanent solution -- it's probably not even a temporary solution."
Even if crude oil prices continued to fall on the
New York Mercantile Exchange
, it would not likely provide much relief to consumers who depend on heating oil to stay warm in the winter. That's because it takes an average of 45 days to ship crude oil from the Middle East and another month or so to distil it into heating oil, Cobb said. Even if crude oil output is increased now, the amount of heating oil produced is not likely to begin reflecting that increase until the end of this year or early next year.
U.S. House of Representative's
approval of $8 million for a new heating oil reserve in the Northeast aimed at storing about 2 million barrels is not likely to help either. In fact, analysts say it is likely to make the situation worse in the short term as the government will be competing for distillate supplies that are already scarce.