2008-09 Could be another expensive winter
Heating oil costs expected to meet or beat last year’s numbers

Media release

Conception Bay South, NL, October 9, 2008- Consumers in Eastern Canada can expect to pay the same price as last year for heating oil product and they have a good chance of setting new records for the fuel, that’s from George Murphy, group researcher and member of the Consumer Group for Fair Gas Prices.

What we may see this winter
“Consumers are facing an uphill struggle again this winter as several factors have played into the marketplace to work against the cost of heating and stove oils. As of today, we are presently 16 cents a litre higher than where we were last year and we are also facing a lower Canadian dollar. That in itself has cost the Canadian consumer an added six cents a litre this past week and is going to be hard to overcome,” said Murphy. “If these numbers hold up and nothing else changes and we see the same rate of increase as last year, we have a good chance of the consumer paying upwards of $1.38 a litre for heating oils this winter if I pare that with last years record of $1.22 a litre. That, I caution, is a number based on the actualities I see now and not the actual that may occur if consumers are faced with other outside issues or circumstances. Pricing may be mitigated somewhat simply because consumers won’t be able to afford the product in the first place.”

The “If Factors”
“We do have some conditions in the markets that may change the playing field and they remain a lot of what I call the “If Factor”. Refiner capacity, for example, remains at a historic low and this has affected the building of heating and stove oil inventories. They simply did not increase during the off-use season. OPEC is trying to put together an emergency meeting to discuss possible production cuts in an effort to help sustain pricing. If they cut production in the face of economic slowdown, then we can expect pricing to be supported. There are, of course, other geo-political conditions I don't need to touch on here.

Changing conditions
“Consumers can see the opposite happen if recession hits. Again, prices have a slight possibility of decline if the use of distillate fuels drop because of the economic downturn but that has also to be matched by an increase in refiner capacity and gains in inventory status in the United States. Again, if a slowdown does occur, industries who use number two oils will not need it and distillates may increase because of less tractor trailer use.

Impact of jet fuels on the winter heating mix
“While our winter heating mix contains 75 per cent jet fuel to #2 mix and, as of today those prices remain strong being almost a nickel a litre higher in value against last years numbers. I would have hoped that the drop in airline usage would have impacted that, but to no avail. Again, we have to see increases in inventories to impact the price and that simply isn’t happening.

Consumers and governments face the reality
“Consumers will have to take a long, hard look at the type of heating system they use at their homes. Heating oil usage has been measured at a historic low in the United States and has declined in use to only 7 per cent of the northeast population, the majority of the population of which have already made the switch back to either natural gas or electricity. It may be costly to do so but, there may be some worth in the consumer investigating the switch and cost-effectiveness of such a conversion. It may simply be a case of where heating and stove oils have become redundant means of heating even though there is still a consumer need.

“Government is looking at the rebate program in Newfoundland and Labrador but there has been no word yet on the program or what it entails. To add to that, the federal government needs to actively pursue their involvement in the rebate program on a national basis as they are chief beneficiaries to any taxes collected on heat. While a conversion to other forms of heating is expensive to consumers, government may also be forced to look at helping out consumers with the costs of conversion along with possible home retrofit-type programs to help consumers save.”

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For more information, contact;

George Murphy
Group researcher/member
Consumer Group for Fair Gas Prices