U.S. consumers are paying 44 percent more for heating oil than a year ago, 30 percent more for gasoline and 60 percent more for natural gas. Crude oil prices at a record $55.50 a barrel in New York last week signal that the costs are going still higher. Americans will pay an extra $10 billion this winter to heat their homes, said American Petroleum Institute economist John Felmy, and the effects are rippling through the economy. Higher energy bills may curb holiday sales gains for retailers such as Wal-Mart Stores Inc., slow the economy's growth and influence votes in the presidential election.
``My heating bills went through the roof, so I had to do something,'' said Carlos Albergaria. He is spending $3,000 to install a furnace that burns discarded motor oil at his Fall River, Massachusetts, auto-repair shop after his natural-gas heating bill doubled to $1,200 last winter. Albergaria, 45, said he abandoned plans to switch to heating oil after finding that it now costs even more than natural gas. When the new furnace is installed early next year, it will burn oil drained from wrecks hauled into his garage. U.S. retail prices for heating oil, diesel, gasoline and jet fuel set records this year, lifted by soaring crude-oil costs, the shutdown of Gulf Coast refineries by Hurricane Ivan and tougher anti-pollution standards. Global petroleum demand is exceeding expectations, prompting the International Energy Agency to raise its forecast for crude oil needs every month except one this year.
Colder-than-normal weather that may cause consumers to turn up their thermostats during the next five months is forecast from Missouri to Maine, according to Earth Satellite Corp., a Rockville, Maryland, meteorology company, potentially making the situation worse.
Voters
Energy prices haven't emerged as a pivotal issue in the presidential race, according to Frank Newport, editor in chief at the Gallup Organization Inc. Only 2 percent of respondents cited gasoline prices when asked the most important problem facing the country, according to a Gallup survey of 1,012 people between Oct. 11 and Oct. 14. In 1979, 33 percent answered energy prices when asked the same question. ``As a major issue in the campaign, it doesn't look like its percolated to the top yet,'' Newport said. Voters surveyed by Fox News in June preferred Democratic Senator John Kerry by 7 percentage points as the presidential candidate who would do a better job handling high gasoline prices. One in five respondents among 900 registered voters blamed Republican George W. Bush for high gas prices, and 46 percent said the president can control gas prices. The error margin was 3 percentage points.
`Biggest Threat'
Rising oil and natural-gas prices this year have acted like an $85 billion tax, according to Federal Reserve Governor Ben Bernanke. Energy costs will shave 0.5 to 0.75 percentage points off economic growth, Bernanke said in a speech Oct. 21 at Darton College in Albany, Georgia. Surging energy prices are ``the biggest threat'' to the U.S. economy, U.S. Chamber of Commerce chief economist Martin Regalia said Oct. 18 at a gathering of oil-company executives in Pasadena, California. ``It's hard to come up with any kind of forecast unless you can tell me what's going to happen to oil prices.'' The average price for gasoline at U.S. filling stations climbed 10 percent in the past five weeks to $2.035 a gallon, close to the record $2.064 reached on May 24. Diesel, burned in trucks and railroad engines, has climbed 45 percent from a year ago to record $2.18 a gallon.
Grim Winter
Retail heating-oil prices jumped to an high of $1.988 a gallon as of Oct. 18, with the unofficial start of the heating season still two weeks away, Energy Department figures showed. Natural gas, the most widely used U.S. furnace fuel, has already surpassed the highs of last winter at the benchmark Henry Hub in Louisiana, according to data compiled by Bloomberg. ``It looks grim for this winter,'' said Nadia Adawi, executive director of Energy Cooperative Inc., a Philadelphia- based fuel supplier. Clients who usually fill 275-gallon storage tanks in early September to prepare for the first cold spell of winter have been delaying for the past six weeks, hoping prices will decline, she said. Heating-oil futures traded in New York, the benchmarks for wholesale prices, suggest the wait may be in vain. Heating oil for January delivery touched $1.6030 a gallon on Oct. 22 on the New York Mercantile Exchange, highest since the contract began trading in 1978 and almost double the futures price a year ago. Retail ``prices are already around $2 a gallon here and it's not even cold yet,'' Adawi said. ``I am dreading what will happen when temperatures start dropping off.''
Bankruptcy Threat
The largest U.S. distributor of home heating oil, Star Gas Partner LP, on Oct. 18 said it may seek bankruptcy protection, in part because its Petro unit has been unable to pass on enough of its rising wholesale fuel costs. Stamford, Connecticut-based Star Gas is negotiating with lenders to keep the credit it needs to stay afloat while it waits for customers to pay their bills. ``These kind of prices are putting a lot of pressure on retail-distribution companies that have to wait to collect from their customers,'' said John Dziedzic, chief financial officer of Warren Equities Inc., owner of Warex Terminals, a Newburgh, New York, heating-oil wholesaler. Warex sold its residential-distribution unit 10 years ago because it wasn't profitable enough, Dziedzic said in an interview.
Reduced Growth
Increasing prices for all types of petroleum-based fuels have been battering airlines, trucking firms, railroads and retailers for most of this year. Escalating fuel costs contributed to third-quarter losses at Delta Airlines Inc., American Airlines and Northwest Airlines Corp., and a 36 percent drop in net income at Union Pacific Corp., the world's second- biggest user of diesel after the U.S. Navy. Consumers will probably spend less on clothes, Christmas gifts and other merchandise at Federated Department Stores Inc. and other retailers during the final months of this year as higher gasoline and furnace-fuel costs erode spending power, said Richard Curtin, director of the University of Michigan's consumer- sentiment survey. ``They will be spending more on gasoline because they have no choice if they want to keep driving,'' Curtin said. ``That spending will be taken out of clothing and other small-ticket items.'' Wal-Mart Chief Executive Officer H. Lee Scott said on Oct. 5 that energy prices ``will be a continuing challenge'' after sales increased 2.4 percent in September and 0.5 percent in August.
Cutting Forecasts
The fuel rally has prompted Wall Street economists to cut economic-growth forecasts. The economy will probably expand at an annualized rate of 3.8 percent during the October-December period, according to the median of 63 estimates in a Bloomberg survey of economists conducted from Oct. 1 to Oct. 11. That's down from 4 percent in a previous survey. Growth will continue to slow next year, falling to 3.6 percent during the first and second quarters of 2005, and 3.5 percent in the third quarter of next year, the survey showed. U.S. households earning less than $50,000 a year will suffer most from increased gasoline and heating-fuel prices, said Mark Zandi, chief economist at Economy.com, a West Chester, Pennsylvania, economic-research group. About 8 percent of the budget of a family making under $50,000 annually goes to energy bills, compared with 3 percent to 4 percent in households earning from $50,000 to $75,000 a year, Zandi said.
Family Budgets
Families making more than $75,000 annually take the smallest hit from higher energy bills, with about 2 percent of their budgets devoted to gasoline, power, heating and other fuels, Zandi said. ``Once people start paying their home-heating bills, the complaining will become louder,'' Zandi said. Scott Jackson, president of International Intelligence Agency, a Des Plaines, Illinois-based repossesor, said his crews are spending $350 a week on gasoline to search for cars whose owners are delinquent on loans. That's up from $100 a year ago, said Jackson, 35. The ``several hundred'' repossesors who work for Jackson across the U.S. are independent contractors who cover their own fuel costs. Jackson suspects they are driving less and not telling him about it. ``Most of the guys are saying they're checking out more leads and doing more driving than they really are because they can't keep up with the fuel costs.'' ///www.bloomberg.com