Rhode Island residents and businesses are enjoying much lower prices for heating oil than a year ago – a trend that could continue through the winter, according to forecasters.
On average, the price of a gallon of heating oil was $1.269 early last week, down from $1.53 during the same week last year, according to the State Energy Office. It was the lowest price in more than 18 months.
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The low prices should remain, according to a forecast released last month from the federal Energy Information Administration. It says that consumers should pay about 17 percent less for heating oil this winter.
“Relatively weak demand and generally ample fuel inventories portend sharp reductions in fuel prices compared to last winter’s,” the EIA’s forecast said. The projection is based on normal weather assumptions.
Last week, crude oil prices dropped to a two-year low – less than $20 a barrel for December delivery – after OPEC officials warned of a price war if producers such as Russia, Norway and Mexico don’t cut production.
Residential demand is down because weather – so far – generally has been mild compared to last year’s early cold snap. And commercial and industrial demand for oil is off because of the slumping economy. For example, jet-fuel demand dropped off sharply as travel declined following the Sept. 11 terrorist attacks, officials said.
But industry officials warn that the market is prone to volatility.
“Prices are down now, but if something goes awry, like problems with a wellhead, a big refinery going down, (prices) could shoot up,” said Vic Allienello, chairman of the Oil Heat Institute of Rhode Island. “There are a million things that could affect the market.”
Allienello said the fallout from the Sept. 11 terrorist attacks illustrated the oil market’s unpredictability. Instead of oil prices shooting higher – as many in the industry predicted – they sank.
“After (Sept. 11) I thought I was sitting pretty good with the purchases I had made, because we thought prices would skyrocket,” said Allienello, also president of the East Providence Fuel Co. “But guess what? They’re bottoming out.”
Jack Sullivan, CEO of the New England Fuel Institute, a Watertown, Mass.-based trade group, agrees that there is no way to predict what prices will do this winter.
“Clearly the market continues to be soft,” Sullivan said. “Does it have the potential to spike? No question about it.”
Sullivan said the institute has projected a slightly colder-than-normal winter, which would spur demand for heating oil and drive prices higher. And the potential for increased jet fuel consumption – spurred by a recovering travel market and military action – could also cause prices to edge higher, he said.
