Oil prices fueling concern
Hudson resident Janice Pack sat at her home computer Tuesday bundled up in a sweatshirt, long-sleeve top, pants and slippers.
With her thermostat set at 60 degrees, her house was chilly.
“I need to make this tank of oil last as long as I can,” she said.
The rising costs of heating oil and gasoline have forced the 44-year-old single mother to cut corners nearly everywhere – and it’s only October. Entertainment these days means watching TV because there isn’t enough money left to go to the movies. Pack recently went apple picking, but didn’t fill up the bag because it would’ve cost twice as much. Going out to eat doesn’t happen anymore, she said.
“We used to get a pizza every payday,” said Pack, who works two jobs – one as a project manager at Equipment Environments in Hudson and another part-time at Gold’s Gym.
Not only are $55-a-barrel oil costs and nearly $2-a-gallon gasoline costs making headlines, but they’re also affecting the lives of local residents, as well as the bottom line of many businesses.
Americans are expected to see significant increases in their home-heating bills this winter, and they’ve already spent 16 percent more on gasoline in the first nine months of this year than they did last year, according to the federal Energy Department.
Crude oil – the unrefined oil that comes from the ground – traded at $54.95 a barrel Wednesday on the New York Mercandile Exchange; heating oil increased 4.85 cents last week, to $1.557 a gallon – 89 percent higher than last year.
The average price of heating oil last month in Southern New Hampshire was $1.57 a gallon, according to NewEnglandOil.com.
Pack filled her oil tank earlier this summer when prices were lower. She even pre-paid $200 on her account to get the “pre-buy” pricing. Now she fears what’s in her tank will only cover a third to a half of the oil she’ll need to heat her home this winter, even at 60 degrees.
“So my daughter and I will continue to layer up and make the best of it,” Pack said.
Why have oil prices gone up so much in the past month?
It has to do with slowed production in the Gulf of Mexico, which has lost more than 22 million barrels (close to 400,000 barrels a day) since Hurricane Ivan struck last month, said James Williams, president of WTRG Economics, an Arkansas-based consulting company for energy producers.
Just two years ago, there were 6 million spare barrels of crude oil out of 80 million barrels used worldwide.
“It’s been an especially tight market because of strong increases in world demand and the lack of much excess capacity to supply that demand,” Williams said.
Now, with the increases in demand in China
and some other parts of Asia, the excess oil capacity is down to fewer than 1 million barrels a day, or just 1 percent of daily demand.
“Any industry that’s running at 99 percent of capacity is going to have high prices,” Williams said.
Last October, the wholesale price of heating oil was about 80 cents a gallon. Last week it got up to $1.55. Wholesale heating oil was $1.55 Thursday, compared to a $1.43 wholesale gasoline price.
“If you are just filling up your tank with heating oil, you can expect to pay close to 70 cents a gallon more than you did last year,” Williams said. “Now, that’s a lot.”
It’s unclear just how long the high prices will remain.
Applications for federal fuel assistance funds are up this year, according to Louise Bergeron, energy director at Southern New Hampshire Services.
“The trend is that people are coming in much earlier and the appointments are up for this time of year,” Bergeron said. “At one point at the beginning of the season, we were at almost three times the number of people.
“We’ve had people calling us who have never called before because they’re so concerned about the cost of fuel.”
Last year at the beginning of December, Southern New Hampshire Services received 516 applications for assistance. As of Oct. 18, Southern New Hampshire Services had 1,256 appointments scheduled.
People who don’t qualify for fuel assistance are cutting back by spending less on other things.
To save on heating costs, John McGondel, 49, of Derry said he heats his home with wood.
The owner of White Pines College Prep Academy in Londonderry has also become more conscious of how far he drives his Hyundai Elantra.
Instead of driving to the mall, he and his wife, Eileen, a professional nanny, are doing all of their shopping online. He’s also doing electronic banking to save a trip to the post office and the price of a stamp. Anything to save him a trip to the gas station.
The McGondels also eat out less.
“Instead of twice a week, we go maybe once every two weeks,” he said. “We’ve begun spending more money on supermarket food.”
‘Through the roof’
Transportation businesses are among the many industries concerned about rising fuel prices.
Law Motor Freight Co. of Nashua was recently forced to implement diesel fuel surcharges as high as 10 percent to all customers.
“I’ve been here 12 years and this is the first time we’ve had to put one in place,” said Brian Law, the company’s vice president.
Last year, the company locked in at $1.32 per gallon for diesel fuel. Lock-ins were not available this year, Law said. He paid $2.09 last week.
“We just can’t absorb it,” he said.
Law Motor Freight has a fuel-adjustment clause with its clients, including government contracts, which states that for every 5-cent increase in fuel, the fuel surcharge will increase by one-quarter of a percent.
While it has affected the way he has had to do business, Law said he is worried that the high prices are going to cause a downturn in the economy.
“As a result, I’m going to have lower growth, lower sales and higher prices as a consumer,” Law said.
Mark Zandi, chief economist at economy.com, said that while $55-a-barrel oil prices won’t push the economy into a recession, it will create hardship, especially for lower- and middle-income households.
“It may come down to, do I pay my home heating bill, do I pay my credit card bill or do I buy Christmas presents?” Zandi said.
Should oil prices hit even $70 a barrel, Zandi said that would create a recession.
“The economy is resilient and it takes a lot to push it into a recession, but I think $70 oil is a lot,” he said.
“It would hurt the global economy and our exports. I think that would be too much for us to digest.”
Zandi said consumers are already spending less. Retail is still growing, but the rates of growth have slowed, he said, especially retailers who cater to lower-income households.
If oil prices don’t come down soon, Zandi predicts we’ll see an impact on vehicle sales, which will have a broader impact on the economy as a whole.
“I think $55 oil, if we stay here, is a problem,” Zandi said. “We can all overcome it, but we’re all going to feel very uncomfortable about next year’s economy.”
Matt Allard, vice president of Ray the Mover in Manchester, said his business has already taken a financial hit.
“The rates have gone through the roof,” Allard said.
While the company tries to find the cheapest prices along the East Coast and fill up there, he said the company has to increase prices when fuel prices go up.
And when customers lock in a rate, and then fuel prices go up, Ray the Mover takes a hit.
“I can eat anywhere from $200 to $1,200 per trip in fuel,” Allard said. “It’s a pretty hefty number when you’re not used to having something fluctuating.”
But there isn’t much the company can do, Allard said.
“In order to stay in business in the transportation business, you have to have fuel,” he said.
Hospitals are worried, too. St. Joseph Hospital’s facilities management manager, Joe Marquis, said he’s concerned about the hospital’s $371,000 heating budget for 2005.
“It’s going to be very close, very tight,” Marquis said.
The hospital can run on either oil or gas and uses whichever is cheaper, he said. It has not locked in with any vendor. Instead, it will wait until the end of October or beginning of November to see who offers the best price, he said.
“The company that we deal with has been very good to us keeping the prices as low as they possibly could,” Marquis said.
Meanwhile, the hospital has tried to cut energy costs “every way possible,” Marquis said. The HVAC supervisor was able to squeeze as much energy out of each unit by keeping the filters and boilers clean, he said. They even preheat the water going into the boilers to reduce energy costs.
Natural gas, too
People are spending more on heating oil, but they’ll be spending more on natural gas, too.
Although there’s plenty of natural gas in storage, U.S. natural gas prices are expected to go beyond last year’s record annual average of $5.43 per mmBtu (A calculation used to price gas volumes based on the amount of heat generated). The average was $5.80 for the first nine months of this year.
Right now, the wholesale price of natural gas is 20 percent higher than it was last year, WTRG’s Williams said.
Natural gas, which is produced from wells in the United States and Canada, should be in sufficient supply for the winter, Williams said.
“I don’t see natural gas as near the problem as heating oil and crude could be,” Williams said. “If we have a phenomenally cold winter that brought storage down to below normal levels, then the natural gas price would go up, and it might compete with crude.”
The Nashua School District heats its buildings with natural gas. It budgeted $1.026 million for the costs of natural gas based on last year’s costs, which saw historically high prices, according to Mark Conrad, business administrator for the district.
“If we find our costs are going higher than they were last month, we will have to look at cutting other accounts,” Conrad said, adding those could include non-personnel accounts, building-repair accounts and replacement of computers and supplies.
“There will be a direct impact on education,” he said.
The Nashua School District works through the New Hampshire Gas Aggregation Program, which allows it to buy energy at the best price under a program through the city of Manchester. The district is currently with Keyspan.
Four years ago, the district was involved with an “Energy Education” program in which it hired a full-time energy manager whose job it is to make sure staff members turn off lights and boilers, clean out refrigerators and turn them off during vacation, among other things.
“We’ve taken light bulbs out of our vending machines,” Conrad said.
The school district has cut energy costs by 18 percent, he said.
Keyspan on Wednesday sent out letters to its 23,784 Nashua customers offering a “fixed price” option. That option offers the ability to lock in a price of 89.25 cents per therm (a therm is a measure of energy.) Last year, the fixed-price option was 85.97 cents per therm.
“The fixed-price option protects the customer in case the cost of gas increases,” said Carmen Fields, director of media relations for Keyspan. “But if it’s a warm winter and the cost decreases, they’re locked in to that rate. It’s a decision they have to make.”
Pack, the single mother from Hudson, has lots of decisions to make. She recently decided to disconnect her home telephone and rely solely on her cell phone.
“I can’t afford this,” Pack said. “Things keep going up and up and up. The rent. The milk. There’s no telling where this can go.”