Petromarket

November 2007

Last heating season, we experienced volatility in prices and volatility in weather conditions. In a six-month period, we saw price swings of over 50% in heating oil, crude oil, gasoline and diesel fuel. We experienced record high temperatures (70’s) in January 2007, and record low temperatures (5 degrees) in March.  We can’t do a lot about those temperatures, but what about those price volatilities?
Petroleum prices are no longer based on simple supply and demand of cold temperatures. In today’s market, price volatility is the result of many factors including tensions in the Middle East, financial hedge funds, weather-related natural disasters, a precarious and uncertain supply, and increased world-wide demand. Even a comment by a political leader can cause prices to swing wildly in a single day!

For instance, let’s take a look at some recent changes:

• New York Times, 10/5/07: High oil prices combined with slower economic growth could hit consumers and businesses hard, say some analysts. Oil prices have remained higher than $80 per barrel almost every day since Sept. 20th, when the price soared to a record $83.32 a barrel. However, consumers and the overall economy may not be as affected by higher oil prices as they were in the 1970s. The amount of energy necessary to produce $1 of economic output has declined by almost half since 1980, according to the Energy Department. Still, the transportation sector has been hit hard by soaring oil prices. Airlines worldwide project they’ll spend $132 billion on jet fuel in 2007, up sharply from $40 billion in 2002. And the U.S. trucking industry anticipates spending $107 billion on diesel fuel this year, up from $45 billion.
   

• CNNMoney.com, 10/9/07: Consumers will spend more to heat their homes this winter, according to the Energy Information Agency (EIA). Oil heating bills are expected to be 22% higher this winter than last winter. That represents a $319 increase in average heating bills. About 7% of the U.S. households use oil to heat their homes. Natural-gas users, which represent about 50% of households, can expect to pay 10% or $78 more, to heat their homes this winter. Those using propane will pay 16% or $221 more, while those using electricity will pay 4% or $32 more. The EIA also predicts that this winter will be 4% colder than last winter. That would still be about 2% warmer than the average of the last 30 years.

Can America take back control?

Oil dependence including price hikes during supply disruptions, and transfer of wealth, has cost America an astounding $3.5 trillion! America’s concerns spread beyond price and supply of crude oil to include: “How can we take back some control….of our dependence on foreign oil…" To:  "How can we make crude oil more friendly’ to our environment and our economy?”

One answer may be to focus on renewable energy sources. If we increase our use of biodiesels, how would that affect these concerns? Let’s take a closer look at pricing of crude oil and how the use of biodiesels (for driving our cars/trucks/boats and heating our buildings) could reduce our dollars going to foreign oil exporters.

The 5% factor

If we use 19.656 million barrels of oil a day (U.S. Department of Energy figures), 62% of which is imported, and pay $61/barrel, then in one day, we pay out in excess of $743 million dollars to foreign countries for that oil! If we could keep just 5% of those dollars in the United States, it would be significant….over $37 million for one day!  We can cut our foreign oil use by using American produced biodiesel at a 5% blend with our petroleum oil in all heating and diesel applications.  By doing so, that additional $37 million would stay in this country daily, and not go to foreign countries. Our oil imports would be reduced, our renewable, American produced biodiesel would keep those dollars here in this country, without sacrificing our current lifestyles or even changing our daily habits!
Think about it….these dollars are just for one day! Projected out over a year, that means putting back into our economy (and out of foreign country pockets) approximately $13 billion dollars!