Media Room
Heating Oil News
Heating oil speculation leaves many in the cold
January 23, 2011
As the air grew chillier last week, Bob Landis fielded some fiery calls from angry customers.
Landis, owner of Leon C. Landis Inc., a fuel oil dealer in Elizabethtown, said people are upset that the cost of heating oil has risen beyond what they expected — and what they can afford.
"Because we're the person at the end of the phone, they want to blame us," Landis said. But "the problem isn't here," he said. "We're just a small company."
And one that, like its customers, is being buffeted by big forces far beyond its control.
Like the price of gasoline, home heating oil prices are at their highest level since late 2008. In part, that's due to an increase in demand throughout the frigid Northeast. But some say there's an even bigger factor:
Speculation.
Echoing a view held by many economists and some in Congress, some local dealers say the investors buying oil on paper are hurting those who need to buy the actual product to heat their homes.
The number of people applying for government help to pay their heating bills has soared this year. And oil dealers say they are hearing from customers who aren't just angry but desperate, unable to pay their bills, pleading with the company to work something out.
"We deliver oil to a lot of elderly people," said Keith Reitz, owner of Reitz Oil in Rohrerstown. "They're on very tight fixed incomes, and prices should be in better shape; it's just that the market is so manipulated.
"And try telling that to the 84-year-old grandmother who says, 'Do I buy oil this week, or my medication?' "
Help from state
According to the state Department of Public Welfare, the number of Lancaster County residents seeking help with home heating oil bills is up significantly this year.
Anne Bale, DPW deputy press secretary, said that between Nov. 1 and Jan. 13, 8,001 county residents had received cash grants from the Low Income Home Energy Assistance Program, or LIHEAP, to help pay heating bills. That represented a 14.6 percent increase over the same period a year ago.
Another 539 were approved this season for "crisis" grants, which go to households in immediate danger of being without heat. That number is up from 338 a year ago — a 59 percent spike.
The money can be used to pay for any type of heating. CAP, the Community Action Program of Lancaster County, administers programs for low-income residents who need help paying electric or gas bills.
Natural gas prices here have fallen significantly, with UGI announcing in December that its rates were dipping to a seven-year low.
The price of crude oil, by contrast, is up 14 percent since September, hovering near $90 per barrel last week. Analysts expect it to hit $100, probably this winter.
Here in Lancaster County many heating oil dealers were asking between $3.09 and $3.19 per gallon. Few expected that prices would spike to that level this year.
"When you see inventory numbers, they're at five-year highs," Michael DeBerdine, president and CEO of Rhoads Energy, said. "There's so much supply out there, we're swimming in it."
In addition, DeBerdine said, his firm ran some numbers and determined that despite the recent cold snap, between Oct. 1 and last week "we're almost dead-even with where we were" this time last year; in other words, it isn't that much colder.
"So supply and demand has nothing to do with it," DeBerdine said.
Indeed, the prospect of increased demand may be more of a factor than actual demand. Sander Cohan, an analyst with Energy Security Analysis Inc in Wakefield, Mass., told Bloomberg News earlier this month that the recent spike in heating oil prices to a 27-month high "comes from traders in New York looking out their window and seeing snow."
Snow equals cold, which means more people will need heating oil, which makes oil an attractive investment.
And as the value of the dollar ebbs, commodities —!qnot just oil but gold, corn, copper and more — are seen as a hedge against inflation.
Sen. Sherrod Brown, D-Ohio, last week blamed speculators for the high price of oil in his state, saying speculators "will bet on prices going up, encouraging others to bet on prices and they pocket a lot of money."
The Dodd-Frank financial reform law passed last year permits the federal Commodity Futures Trading Commission to restrain speculators. But as reported by Bloomberg Businessweek last week, "CFTC Chairman Gary Gensler may lack the votes needed to issue final rules, and his agency has just begun to gather the data it needs to fine-tune and enforce some restrictions. On top of that, newly empowered Republicans in Congress say the CFTC hasn't shown speculation is a problem and is moving too fast."
The CTFC says the new rules, if adopted, would take effect in 2012 at the earliest.
That frustrates local oil dealers, who say they're getting squeezed between Wall Street traders and customers on Main Street angered and anguished at the rising cost of oil.
Anne Heisey, of Heisey Oil in Mount Joy, said the higher prices have caused misery. "We have a lot of people who want to make payments" on deliveries of oil, she said. "Or they want us to hold their check [until a certain date]. We can't do that; we're too small of a company."
But, she said, a lot of customers seem to be seeking out smaller suppliers, in the belief that small dealers will be more willing to bargain over prices and payment. But many of those dealers are themselves struggling to make ends meet.
"The profit margin is not like it used to be," Heisey said.
Keith Reitz agreed, calling this "one of the most frustrating years I can remember."
"We're doing everything we can to support [needy customers], but this just isn't right. We're the ones who buy and sell the physical product; the investors buy it on paper and elevate [the price] for their own personal gain.
"It's not 'we the people' who are in charge. It's 'we the investors.' "
