Demand for heating oil causes US crude price rise
The continued cold weather in North America has resulted in a dramatic rise in crude oil prices. On Wednesday 19 February crude oil rose following yet another bout of freezing weather. Oil traders are concerned that supplies may start to struggle to meet the growing demand especially due to political tensions in Africa and Venezuela.
The winter of 2014 is so cold that it has now been given an official meteorological name – the Early 2014 North American cold wave. The extreme weather is affecting Canada and most parts of the United States. Even Florida and Northeastern Mexico are feeling the brunt of cold weather from the north.
Heating oil inventories have fallen to an all-time low with a 1.8 million-barrel reduction last week. Distillates stocks have fallen by 676,000 barrels and US crude stocks have fallen by nearly 500,000 barrels.
Global oil output is still struggling to cope following the Libyan Civil War, which started in 2011. Libya is the largest oil producer in Africa and the fifth largest in the world. Currently Libya is producing 375,000 barrels per day; its capacity is almost ten times higher at 3.1 million barrels per day. Libyan militants are demanding the parliament hand over power; therefore the problems in Libya are far from over.
Recent political protests in Venezuela have become more violent and there is a serious risk of political and economic instability arising that will affect US markets. Protests started to take an ugly turn following the imprisonment of opposition leader Leopoldo Lopez. Protests against President Nicolas Maduro’s socialist government, which is blamed for rampant crime, runaway inflation, high unemployment and other economic problems, have spread to provincial cities. Venezuela is the fifth largest oil exporter in the world and has the world’s largest known oil reserves, which are currently estimated at 296.5 billion barrels. This represents around 20 percent of the global reserves.
Andy Lipow, president of Lipow Oil Associates in Houston, aired his concerns, saying: “The market continues to be supported by oil demand led by heating oil, but supply issues from Libya and concern about the violence in Venezuela are making traders nervous.”
The overall impact of these problems is that US crude had increased by 59 cents to $103.02 on Wednesday, February 19, the highest since October 10, 2013.
Ultra-low sulfur diesel (ULSD), heating oil, also rose by almost four cents to trade at a staggering $3.1397 per gallon.
These rises in heating oil prices mean that homeowners who made the decision to convert to natural gas heating systems are paying even less now. Making the change from oil to gas is certainly the most sensible option, even with demand for natural gas pushing prices up.
Tom Revenidis told NJ.com that the constant cold weather is seriously affecting his business. He manages several properties and is having to foot the bill for the rising heating costs. When he upgraded the heating systems in the six properties he manages, he chose to stay with oil, a decision that is now costing him dearly. He said: “Now I’m actually regretting it a little bit,” which may be understating the situation.
Converting to gas can save a business such as Revenidis’ thousands of dollars every year. Although the initial cost is high, he was quoted around $75,000 for all six properties, if winters continue to be as cold as they are this year the change could pay off.
Meteorologists fear that there may have been a permanent change in the position of the Waiver jet stream. Warming in the arctic has pushed the jet stream south, which is bringing exceptionally cold weather from the north. Some scientists predict that this trend will continue so homeowners need to start calculating the savings that could be made over the next 10 or 20 years.
There seems little doubt now that these cold winters are here to stay. We may not experience an exceptionally cold winter every year, but they will certainly return. A warmer arctic is pushing the cold air further south than we are used to and while global warming continues, the arctic will get warmer still. If you have not already thought about ways to reduce your heating bills now is the time to start planning. Spring is a good time to update your heating system to improve efficiency and insulate your home in readiness for next winter.