Natural gas prices rise 40%

www.usatoday.com Posted 2/24/2003 11:28 PM By Barbara Hagenbaugh, USA TODAY

WASHINGTON — Natural gas prices jumped nearly 40% and heating oil costs hit their highest level on record Monday, developments that point to increases in already bloated home-heating bills.

Residential heating oil prices are up 50% from a year ago, when the average winter heating oil bill was $642, the Energy Department says. Bills might approach $1,000 this winter.

While natural gas prices are not as easy to track, consumers were reporting similar jumps before Monday's rise. The average household heating bill for natural gas users was $596 last winter.

"Higher natural gas and heating oil prices will cut more into consumer budgets," says Jim Williams of WTRG Economics, an energy consultant. "If you are old enough to remember, it is time to bring out that sweater that President Carter used to wear while encouraging us to turn our thermostats down."

In futures trading in New York, natural gas prices rose from $6.61 per million BTU to $9.14, the highest in more than two years. Heating oil hit $1.15 a gallon, surpassing the previous record high set in December 1979, before ending the day slightly lower.

Futures prices usually have an impact on retail prices later, and not necessarily by the same magnitude, but point to the direction of prices.

More than half of U.S. homes are heated with natural gas, while 8% are warmed with heating oil. Prices for electricity, which heats 30% of U.S. homes, also might rise, because natural gas and oil are among fuels used to produce it.

The increased heating costs, which in part reflect higher demand during an especially cold winter in many parts of the USA, act as a drag on the economy.

"We're in a weak recovery as it is, and this is just one more headwind in an economy that is facing many headwinds," says Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas.

Forecasts for another mass of cold air to sweep through parts of the East Coast and the Midwest later this week led traders Monday to bid up prices. Energy prices were already on the rise because of a strike in Venezuela that has drained oil off the international market and concerns that a war with Iraq would choke off oil supplies. In other news:

• Crude oil prices rose to $36.48 a barrel Monday, up 90 cents from Friday's close.
• After rising for 10 weeks, the average price of a gallon of gasoline in the USA last week was flat at $1.66, the highest price since June 2001. Some congressmen are calling for government investigations into possible gasoline price gouging, which station owners deny.