The home heating oil industry has a long and proud history, and Fuel Oil News has been there supporting it since 1935. It is an industry that has faced many challenges during that time. In its 77th year, Fuel Oil News is doing more than just holding
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O C TO B E R V O L . 7 8 N O . 1 0 Editor's Note Prices looking forward T Keith Reid Or at least, the best estimate from some industry experts as to what we can expect this heating season. Without repeating too much from the actual article, while the projections are not excellent for industry dealers and marketers—no one is predicting a substantial drop in the price of oil—there have certainly been worse forecasts. I personally find it credible that legislation from 2000 impacting how commodities are regulated, generally ramping up the participation of financial entities outside of what has been the traditional industry commercial players, has played a notable part in setting a higher base cost of crude oil and as a result refined products. However, within that environment supply and demand still have an impact as does Federal Reserve policy (printing $85 billion per month in "quantitative easing") for at least as long as the dollar is used as the central currency in oil trading. For me, one of the more interesting aspects of the article revolve around the relatively abundant reserves of natural gas and oil that are now being extracted from shale deposits using fracking technology, and how that plays out with the different fuels. Natural gas has settled out at a low, but not the lowest, price range. Oil and refined fuels, on the other hand, seem to have more stable prices but no real drop. The extra supply coming online should certainly impact global prices in a positive manner for the industry and you get some benefit from geography, but where surpluses could be building up leading to lower domestic prices you tend to see significant amounts of product moving overseas as exports. This is the case with distillates and should increasingly be the case with natural gas as more export terminals are approved. On the distillate front, America is now a significant exporter of diesel and that certainly helps 8 his month we cover fuel prices. keep the domestic price of heating oil higher than it perhaps could be in some alternative universe where foreign markets were less dependent upon imports. However, just as significantly, natural gas finds itself settled into a price basket of sorts where it's not likely going to be anywhere near as cheap as it has been, yet it will remain comparably inexpensive. Currently, our experts indicate a hub price of around $3 will to $4 per MMBtu, and using traditional adjustments, you get a residential price of somewhere in the $6 to $7 per MMBtu range. Is that price basket certain and will oil prices necessarily remain as high as they are? Barring some significant new development, the natural gas price seems to be fairly self-regulating at this point. When gas gets cheap, production drops off and when gas gets more expensive extra production is brought online. But as you see increased gas exports and the increased domestic use of natural gas in nontraditional applications and replacing coal in electricity generation, it gets harder to predict exactly how prices will play out. On the oil front, many experts seem to indicate that we have settled into the new normal for prices, but there are contrarian voices who believe that the price of oil is significantly overvalued currently in that we are in for an adjustment. It should be noted that during the price peak before the 2008 crash the majority opinion was that those prices were the new normal. Regardless, dealers and marketers should be considering the possibility that this is the new normal and be working as aggressively as possible to increase efficiency and diversification to deal with the current and potential future impact of this pricing differential – nothing new there. If adjustments do take place and prices ease (though super high natural gas prices are likely not in the picture), then marketers and dealers will be that much prepared to reap the benefits. l F O N OCTOBER 2013 | FUEL OIL NEWS | www.fueloilnews.com EDITORIAL STAFF Editorial Office 1030 W. Higgins Road Suite 230 Park Ridge, IL 60068 847/720-5600 Editor Keith Reid 847/720-5615 kreid@specialtyim.com Managing Editor Debra Reschke Schug 847/720-5618 dschug@specialtyim.com Columnists Charles Bursey, Sr. Shane Sweet George Lanthier List Rentals/ Reprints – Cheryl Naughton 678/292-6054 Fax: 360/294-6054 cnaughton@specialtyim.com PRODUCTION Production Manager – Karen Kalinyak Art Director – Brian Snook A d v ertisin g S ales East – Dave Campbell, Associate Publisher 413/528-2364 Fax: 413/528-8835 dcampbell@specialtyim.com Central & South Rich Alden 603/899-3010 Fax: 603/899-2343 ralden@specialtyim.com Barbara Reynolds 603/588-2086 breynolds@specialtyim.com West – Ken Jordan 972/540-2122 Fax: 972/540-2127 kjordan@specialtyim.com MAIN OFFICE 1030 W. Higgins Road Suite 230 Park Ridge, IL 60068 847/720-5600 • Fax: 847-720-5601 C ustomer S er v ice 845/856-2229 • Fax: 845/856-5822 Fuel Oil News P.O. Box 4290, Port Jervis, NJ 12771