Cold Winter, Year-2000 Worries
May Boost Home-Heating Bills
By ALEXEI BARRIONUEVO
Staff Reporter of THE WALL STREET JOURNAL
Consumers may have to dig deeper into their pockets this fall and winter to pay their home-heating bills.
Higher crude-oil and natural-gas prices, expectations of a colder winter, and anxiety over possible business disruptions caused by year-2000 computer problems are expected to push average heating bills at least 30% higher than last year, according to the U.S. Department of Energy's Energy Information Administration report due out Tuesday.
Last year, consumers enjoyed bargain energy prices brought on by record-low crude-oil prices and the sixth-warmest winter in 106 years. But this year, analysts say consumers won't be as lucky. A normal winter is forecast after three straight warm ones. And crude-oil prices are expected to hover around $20 a barrel through 1999 -- about $7 to $8 a barrel more than last year, the EIA says.
For consumers relying on natural gas for home heating, the price increases this winter could prove even bigger than for heating-oil customers. Natural-gas stocks that recently slipped below year-ago levels continue to decline and are threatening to create a frenzied spot market at the beginning of 2000.
Spike in Prices
If temperatures are normal this winter, "we are looking at the potential for a very serious spike in natural-gas prices sometime in January," Larry Goldstein, president of Petroleum Industry Research Foundation Inc., said.
Mr. Goldstein believes winter natural-gas producer prices will be more than 50% higher during next year's first quarter than in 1999. The EIA projected in its August report that natural-gas prices would be at least 37% higher, but the agency said its new forecast due Tuesday would be even higher.
During the first three months of 1999, natural-gas producer prices averaged $1.74 per million British Thermal Units. Crude-oil prices began rising again in the spring as the economies of many Asian countries began to rebound and after a series of production-cutback agreements by the Organization of Petroleum Exporting Countries.
"Last year, consumers got a bargain on what they paid for fuel," said Dave Costello, an economist at EIA. "This year, there is a double whammy because we expect both higher prices and higher volumes."
Heating-oil prices should average 20 cents to 25 cents a gallon higher during the winter than last year, Mr. Goldstein said. During the fall and winter, heating-oil prices averaged 57 cents per gallon.
Prices could rise even more if the U.S. is forced by cold weather to turn to Europe for added supply. Germany, a big producer of heating oil, cut its refinery runs by as much as one million barrels a day during the summer because of excess inventory and poor refining margins.
Then there is the Y2K factor. Analysts expect year-end prices to spike when consumers, driven by uncertainties over how computers will handle the new millennium, begin stocking up on heating oil, gasoline, diesel and jet fuel.
Output by OPEC
Much of the forecast depends on how well OPEC upholds its production agreements. The group, which has a history of cheating on agreed-to production levels, is meeting this month in Vienna.
Many analysts believe it is too soon for OPEC to raise production levels significantly. Still, analysts expect some increase in production by OPEC and non-OPEC producers before the March 2000 meeting, which could help prices at the consumer end.
The forecasts of higher fuel prices are not expected to change expectations about inflation. "People have come to learn that energy prices are very volatile and that they need to focus on the longer-term inflation rate," said Severin Borenstein, director of the University of California Energy Institute. "These sorts of spikes are in general transitory."
In the natural-gas market, analysts blamed disappointing production results, particularly in the Gulf of Mexico, and decisions by independent producers to curtail production earlier this year for the current trend toward higher prices. Natural-gas production is down about 7% from year-ago levels.
In the gasoline market, crude-oil prices are expected to curtail any seasonal price drops with the end of the summer driving season. U.S. pump prices were expected to peak in August at $1.20 a gallon for regular unleaded, but analysts say prices will continue to creep up another five cents through December.
In California, gasoline prices peaked on Aug. 9 at $1.53 a gallon and have been sliding back ever since. They remain about 20 cents above normal levels, according to the California Energy Commission.
The state is still recovering from a series of refinery fires and shutdowns in the spring and summer. The normally tight gasoline market became even tighter in July after an explosion at Chevron's Richmond refinery and a fire at a Mobil refinery in Torrance, which sent spot prices shooting up again. The Richmond refinery continues to operate below capacity, and some repairs may not be completed until January.
California prices are normally about 12 to 15 cents higher per gallon than the rest of the country because the state uses a unique gasoline blend to meet state emission standards.
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Ed, we've really gotta stop meeting like this! <g> |
