12-17-08 by dugan
I heard recently from a friend in Maine who is freaking out: she’s
paying $4.50 a gallon for her home heating oil, even as drivers pay
well under $2.00 a gallon for gasoline. Her problem, and that of thousands of others,
is that they locked in a contract price for their heating oil last
summer, when oil was three times today’s price and fear was rampant
that it would keep rising. Her supplier can’t help, because he’s also
taking delivery of oil bought on contract at the summer peak. It’s all
part of the damage done by roller-coaster energy prices fueled by
speculative mania.
A secondary issue is that home heating oil prices were in the $2.50 a gallon range as
recently as a month ago, even as gasoline was falling below $2.00 a
gallon at the pump. Refiners know that people can cut their driving,
but can’t do without heat in the sleet storms bashing the Northeast. If
there’s extra money to be made, the refiners won’t show restraint on
their own.
It’s common in the Northeast and Midwest, where
homeowners take delivery of hundreds of gallons of heating oil before
the start of winter, to purchase on contract, spreading the cost
through the year. Then the dealers lock in their own contracts, though
in the face of gyrating prices, the practice has diminished.
Contracts
used to be a prudent consumer decision that would spread payments
through the year. For those who signed up last July, however, it’s a
disaster. They’re paying at least 50% more than people who have the
cash on hand to fill up their heating oil tanks. Some are turning to woodstoves, others are just eating breakfast in their parkas.
Who’s to blame?
Maybe it was a bad judgment call by dealers to even offer contracts
this year, though there were plenty of fears that the price of heating
oil would hit $6.00 a gallon or more. We can blame the hedge funds and
speculators who wantonly drove up prices, but that money is long
gone–there’s no particular pocket to retrieve the money from.
States
facing their own budget shortfalls will be hard-pressed to come up with
more heating aid money, though the federal Low Income Heating
Assistance program was increased this year. The middle class, like my
friend in Maine, is plain out of luck. And even the increased federal
aid program may not be adequate in the face of continuing job losses.
So,
does anyone wonder why Americans are angry at oil companies, angry at
energy speculators and angry at a government that let the free market
run wild?