www.forbes.com
Reuters, 02.25.03, 9:41 AM ET
NEW YORK, Feb 25 (Reuters) - NYMEX crude oil futures should open higher on Tuesday fueled by soaring heating oil and natural gas amid more Arctic weather in the United States and as the possibility of war with Iraq hovers in the background.
NYMEX April crude
www.weeklystandard.com by Irwin M. Stelzer 02/25/2003 12:00:00 AM Irwin M. Stelzer, contributing writer
GASOLINE PRICES are up by over 50 cents per gallon, have passed $2 in some places, and show no signs of moderating. Venezuela, one of our major suppliers, is in an uproar, with unions curtailing oil production. Never mind: We have a reliable supplier to fill the supply gap--Iraq. Our imports from that charter member of the axis of evil rose 24 percent last month, to 1.2 million barrels per day, representing one-third of that country's exports under the U.N. oil-for-food program (or, more aptly, oil-for-Johnnie Walker and aluminum tubes).
Not a good situation. So bad, indeed, that Hollywood types, feeling guilty about the share of the earth's resources that they consume and the pollution that they create (from driving Hummers, not from appearing on television), want us all to give up our safe SUVs and cruise Beverly Hills in prototype vehicles that don't use gasoline.
Meanwhile, we have some 600 million barrels entombed in our Strategic Petroleum Reserve, and are planning to up that to 700 million by 2005. Since we import about 10 million barrels per day, that comes to about a two month supply if all imports are cut off (or four months if we assume that Mexico, Canada, and other non-OPEC suppliers keep the oil flowing).
Unlike the biblical Joseph, who had a plan for the use of his stored-up surpluses when the fat years ended, we only have a plan for putting oil into the SPR, not for getting it out. Just last week Spencer Abraham, our secretary of energy--and no fool--informed us that the Reserve "has nothing to do with price; it's all about meeting shortages." A variation on this theme is the oft-repeated statement that "we shouldn't use the reserve unless we really need it."
This may rankle some economists, but it seems to make sense to Washington policy types whose ability to handle complex economic theories, such as "supply and demand determine price," is minimal. They are after all, too busy studying a stimulus package, formulating an energy policy, and considering how to save Social Security to have time to deal with economic issues!
The cost of our inability to devise a draw-down strategy is far from trivial. The 1991 Gulf war saw crude prices top $40 per barrel, and the economy was in turmoil. But we refused to use the Reserve: After all, it's not about price or, it seems, about recession either. More recently, with prices rising to around $35, and the economy weak, the guardians of our economy and of our energy policy have decided to hold onto every drop of oil in the Reserve. After all, we might "need" it some day.
Unless we get over the notion that the SPR sits in those holes in the ground to cope only with "physical shortages"--a concept too vague to be used as a guide, and one that anyhow gets reflected in the price of crude--we will continue to face costly--and in part unavoidable--price volatility. The SPR should be used as a tool to damp down such volatility, whether that volatility results from a war in the Middle East, an uproar in Venezuela, or any other cause. We have, after all, had periods of volatility without supply disruptions, and it is volatility that imposes huge costs on the macroeconomy.
The problem is that we don't want to turn bureaucrats in the Department of Energy into oil traders, guessing whether an upward movement in price is merely a spike or instead a change induced by durable underlying changes in the supply and/or demand for crude oil. So we might explore the possibility of selling options to buy the oil we have stored, so as to (a) convert the SPR into an earning asset, with the proceeds used to maintain it at the desired level; and (b) let the market signal when withdrawals are indicated--which would be when the options "come into the money."
Is all of this feasible? I'm not certain. But I am certain that we need a rational policy to decide when to use our Strategic Petroleum Reserve, when to add to it, and how large it should be. For when the desert dust settles in Iraq, we will still be heavily dependent on that unstable area of the world for our oil supplies. Russia, Africa, and other regions may be increasing their role in supplying the world with oil, but the Middle East still contains the low-cost supplies and excess capacity that allow it to dominate world oil trade.
Irwin M. Stelzer is director of regulatory studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.
Alicia Archuleta/The Leaf-Chronicle
Jay Buck fills one of the county's school buses at the Operations Complex on U.S. Highway 41A, Monday. In August, the district paid 64 cents per gallon of diesel and the current bid price is $1.18 per gallon.
A possible military conflict in the Mideast and oil worker strikes in Venezuela and Nigeria mean rising diesel prices -- translating into higher costs to transport Clarksville-Montgomery County's students.
School officials think their current budget can cover the higher costs this school year, but for 2003-2004 an additional $100,000 to $200,000 may be needed to buy fuel.
Two other Montgomery County entities also use diesel fuel -- the Highway Department and Bi-County Solid Waste. But County Executive Doug Weiland said it is premature to speculate about how the higher costs would affect their 2003-04 budgets.
"I buy fuel myself and have seen the rising costs," Weiland said. "I wonder, as I'm sure others are, if there is any end in sight."
Weiland said several negative factors such as a 40 percent rise in health-care insurance premiums, loss of state-shared revenue and other aspects are making the county's budget outlook bleak.
Individual department heads and elected officials are compiling preliminary budget requests, and Weiland said those should be submitted next week.
"Until we get hard numbers it's real premature to talk about how it will affect us," he said. "Obviously, all those things will impact us. This has all the prospects of being one of the worst budget years we've ever faced."
The 226 regular education and special needs buses in the public school fleet transport an average of 18,355 students each morning and afternoon. Typically, the buses travel 18,000 to 19,000 miles per day or about 3.4 million miles each year, said Joe Haley, Clarksville-Montgomery County Schools' chief operations officer.
The system annually uses about 365,000 to 370,000 gallons of diesel fuel.
In August, the district paid 64 cents per gallon of diesel and the current bid price is $1.18 a gallon.
Since Haley and other local school officials expected to spend an average of $1.05 per gallon, more money won't be needed for this year's budget. So far, Haley estimated, the system will pay about an average of 95 cents a gallon for diesel over the course of the 2002-03 school year.
School officials had planned to spend between $275,000 and $280,000 on diesel fuel for transportation this year. But next year, Haley predicted, the overall cost could be between $375,000 and $475,000.
"There's not much we can do about it," Haley said. "It depends on where (the price) falls. The oil distributors are telling us they don't think it'll rise much higher than it is right now unless there's a war and the oil fields are set on fire. They think it'll stay somewhere between $1.15 and $1.30, but they don't think it'll go any lower than that either."
The school district has tanks at four different locations for bus drivers to use as filling stations -- the Operations Complex on U.S. Highway 41A, Byrns Darden Elementary on Peachers Mill Road, the Montgomery Central complex in Cunningham and Liberty Elementary on Dover Road. The tanks can store a total of about 70,000 gallons.
Haley said he recalls only one other time when diesel costs rose so much, and they've never really recovered. There was a spike during the Persian Gulf War, but the situation wasn't complicated by the strikes in Venezuela and Nigeria, two of the top seven crude-oil producers in the world.
"I think we can expect to see a 30 to 40 percent increase on average but the market is so volatile that's really a guess," Haley said.
Another factor is a harsh winter across the northern portion of the country where homes and businesses used fuel oil for heating, causing the demand and price to rise, said Haley, who has 23 years experience in school transportation with the local district.
Cameron Collins covers education and can be reached at 245-0716 or by e-mail at cameroncollins@theleafchronicle.com.
Originally published Tuesday, February 25, 2003
www.thereporteronline.com BRIAN ROSSITER , Staff Writer 02/25/2003
Bob DiFabrizio, a driver for Walton©ˆs in Lansdale, hauls hose along a walkway while making a heating oil delivery to a residence on Mount Vernon Street in Lansdale. The high cost of heating your home this winter boils down to stone-cold temperatures and politics.
Scott Walton‚ treasurer of Clyde S. Walton Inc.‚ a Lansdale air-conditioning and heating service firm‚ said his company is paying 225 percent more for refinery oil than it did this time last year.
The shortage is so dire that on two days a week for the past month‚ his company wasn’t able to get oil at its refinery‚ he said.
What’s drying up the oil supply and sending costs to keep warm to dizzying levels is this winter’s below-normal temperatures‚ the oil strike in Venezuela and the lingering threat of the United States going to war against Iraq.
“When one of those things happen‚ we see the price go up‚” Walton said. “When three things happen‚ it’s just difficult.”
Plain numbers tell the story about why folks need more oil this winter. From Nov. 1 to Friday‚ the average temperature in the Philadelphia area has been 35 degrees‚ said Bernie Rayno‚ senior meteorologist at AccuWeather in State College. For the same period in 2001-02‚ the mean temperature was 44.3 degrees.
It’s also snowed 10 times as much in this fall and winter compared with 2001-02‚ Rayno said.
“It’s been colder and wetter‚” he said. “It’s like night and day.”
Nearly half of Walton’s customers entered into fixed-price plans in the summer‚ Walton said.
The rest are feeling the burden of having to pay more to heat their homes‚ but the company has lessened the financial sting by passing along only about half the increases it has faced.
Ed Cardell‚ manager of home services at Souderton-based Moyer & Son Home Services‚ said his customers are using about 20 percent more fuel this winter.
With most Moyer customers having locked into price agreements by mid-July‚ few are stuck with more pricey heating bills now‚ he said.
“Very few customers are affected by a price increase‚” he said.
seattletimes.nwsource.com By Alwyn Scott Seattle Times business reporter
Puget Sound Energy said it is likely to seek an increase in natural-gas rates, perhaps as early as this week, in response to surging prices caused in part by the dry Northwest winter and the arctic blast that swept the East Coast.
The utility, which serves 622,000 natural-gas customers around Puget Sound, said it probably would seek a purchase gas adjustment (PGA) from the state Utilities and Transportation Commission to pass through gas costs that have been creeping higher for months and shot up yesterday.
"We're running the numbers and working on a filing, but the filing is not yet complete," said Grant Ringel, a PSE spokesman. "It could be soon as this week."
He said it was too early to say how big the increase would be. The average residential customer now pays $53 a month, PSE said.
The news comes as wholesale natural gas spiked 38 percent yesterday on the New York Mercantile Exchange, a huge $2.53 jump, to $9.137 per million British thermal units. That compares with typical 10 or 20 cent moves.
The surge was mainly the result of below-average temperatures in Eastern and Central states, which have drained stocks of natural gas and made traders nervous about shortages.
"There's been a lot coming out of storage for weeks now," said Jason Mihos, who writes for California Energy Markets, an industry publication. "The storm that hit the East Coast really walloped prices."
But there's also a long-term trend at work. Natural-gas prices have more than doubled over the past year, said Julie Ryan, vice president of PSE's energy portfolio. That's having an effect on many other energy prices and has raised concern that prices could stay high for months.
Wholesale electricity soared 44 percent to $74.63 per megawatt-hour at Washington's Mid-Columbia trading point, according to Bloomberg News, a 19-month high. Some traders quoted prices as high as $80 in California.
A number of factors are to blame. Natural-gas production has been about 5 percent below normal over the past 12 to 16 months, she said, meaning there was less supply on hand. Cold winter weather in much of the country has increased demand and drawn down inventories. At the same time, rainfall in the Northwest has been about 75 percent of normal, cutting the amount of hydro power available and increasing demand for electricity generated by natural-gas turbines. The prolonged strike in Venezuela has cut crude-oil supplies and, along with concern about a war with Iraq, has boosted prices, which affects the cost of home-heating oil.
PSE last raised rates during the 2000-2001 energy crisis. After natural-gas prices doubled in the summer of 2000 from the previous year, PSE got a PGA increase that lifted the typical bill about $13 to $63 a month.
Another increase took it to a peak of $80 a month in January 2001. By September, a PGA cut the average bill to $70 a month, and last year, three decreases brought the average down to $53.
Alwyn Scott 206-464-3329 or ascott@seattletimes.com