Doing the oil math

I usually have to gas up our little Civic or Corolla about every week and a half. I don't use a lot of gasoline because I'm only about nine miles from my job. The last time I put gas in the car, I paid $3.17. Yesterday I paid $2.49. That's a huge drop in a week and a half.

The drop in the price of crude is bad news for petroleum brokers. The higher the oil price, the more money they make. And now there's plenty of gasoline. So given that we have limited refinery capacity, who's getting stiffed?

Home heating customers:

Then there are the heating oil and natural gas bills that are starting to sting -- all this even as the price of oil has dropped by $10 a barrel in just a few months.

What gives? How is it that one price seems to be dipping while another is skyrocketing and both are based on the same raw product?

The answer lies in the differences between driving and home heating. It is strictly supply and demand for what are essentially completely different products, according to the federal Energy Information Administration, which devoted its weekly petroleum report on Wednesday to this puzzle.

"Certainly crude oil prices are stabilizing, but we expect (heating) prices to remain significantly higher than they were last year," said Doug Mac-Intyre, senior oil market analyst for the agency.

Right now, gasoline, which had spiked upward because of hurricanes and higher driving demand during the summer, are declining; the local AAA fuel gauge report pegged the South Jersey average at $2.40 a gallon, down 42 cents from a month ago but still up from $1.91 last year.

This is, in part, because people are home from their summer travel and the soon-to-end hurricane season, which tends to disrupt the Gulf of Mexico oil supply. But it is also in part because of a record level of gasoline imported from Europe over the past couple weeks, Mac-Intyre said.

Nevertheless, much has been made of the spiraling heating costs America is facing this winter. This, too, has to do with supply and demand for not only heating oil (very similar to diesel) but also natural gas.

Crude oil is still expensive compared to last year, natural gas production is down and global demand for both is extremely high.

New Jersey's public utilities have already applied for rate hikes of 4 percent to 10 percent (including South Jersey Gas).

Finally, there's the weather. With a cold winter predicted, prices will only go higher.

"I do think the market is overreacting a bit, but people are worried," said Michael Lynch, an oil analyst with Strategic Energy and Economic Research in Massachusetts. "There is fear because the weather is so cold so early, and people are already turning on their furnaces. That's usually a bad sign of what is to come."

This is why home heating bills are expected to grow 50 percent to 70 percent this winter, as much as $350 or more on average here and across the country. Already prices for home heating oil are up more than 22 percent since last year, and natural gas is at least 10 percent higher, according to the Energy Information Administration.

Meanwhile, guess who's reaping the rewards? You guessed it:

A sudden interruption in oil supplies sent prices and profits skyrocketing, prompting Exxon's chief executive to call a news conference right after his company announced that it had chalked up record earnings.

"I am not embarrassed," he said. "This is no windfall."

[snip]

This year is shaping up as an exceptionally lucrative one for the oil industry, thanks to strong global demand, tight supplies and high prices for oil and natural gas. While the idea that the Bush administration was considering imposing a windfall profits tax was knocked down yesterday by officials, longstanding resentments against Big Oil are resurfacing and could end up imposing some additional burdens on the industry.

The sense that government should step in to curb the phenomenal wealth and power often enjoyed by oil companies goes back to Exxon Mobil's corporate ancestor from the late 19th century, the Rockefeller oil trust known as Standard Oil.

Today, Republicans and Democrats alike, aware of the politically sensitive issue of high energy prices, are putting increasing pressure on the oil and gas industry to return some of its profits. The ideas include forcing the industry to invest in more refining capacity, to increase inventories to cushion energy shocks, or to provide money directly to the government program that helps low-income people pay heating bills.

Simmering resentment of the oil industry has heated up as gas lines reappeared in some cities this summer and gas prices rose above $3 a gallon, a record even when adjusted for inflation. Gasoline prices, already well above what Americans are accustomed to, spiked after two Gulf Coast hurricanes curbed domestic production and briefly pushed oil prices above $70 a barrel.

This winter, Americans can expect to pay much more for heating their homes than they did last year.

Senator Bill Frist, the Republican leader, said yesterday that executives of major oil companies will be summoned to Capitol Hill to testify about high energy prices. Some of Mr. Frist's language harked back to the 1970's and early 1980's when cries of price gouging at gasoline pumps were common.

"If there are those who abuse the free enterprise system to advantage themselves and their businesses at the expense of all Americans," he said, "they ought to be exposed, and they ought to be ashamed."

This is actually fascinating, that Bill Frist, a conservative Republican, is calling for investigation of oil companies for windfall profits. Just another sign that the GOP coalition is disintegrating...