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Eat Or Freeze

by Steve Kalb | Jun 30, 2008 9:43 am

(1) Comment | Commenting has been closed | E-mail the Author

Posted to: Opinion

stevekalbZ.JPGIf you think people are hot under the collar over the price of a gallon of gas, just wait until this winter. Gasoline may be $4.50 a gallon today, home heating is expected to push $5 or more this coming winter. While you can cut down your driving, you can only get just so cold.

And you would be hard pressed to hear anything about it from Congress or the State Capitol. You’ll hear talk about blaming speculators, OPEC, Nigeria, India, and just about anyone and everyone else for the high price of a barrel of oil, but not much beyond that.

Faced with an impending crisis the only thing our legislators in Hartford were able to accomplish was to pass some silly law that allows discounts if you buy gas with cash. Now as I drive down the road looking for gasoline I have to try and figure out if the posted price on the sign is the “cash” price or the “credit” price. And not all retailers give cash discounts. Here’s a big “thank you” to legislators for adding another layer of confusion. Oh by the way, there are a half-dozen credit cards that give you at least the same discount if not more and are free. But I digress.

It is not unusual for the average homeowner to go through 800 gallons of home heating oil over the course of a winter. In January of 2001, the first year for which the State Office of Policy and Management publishes figures, a gallon of home heating oil was about $1.20. You could heat your house all winter for about $960. In 2002 the average price was $1.50 a gallon. Total cost? About $1,200 over the course of the heating season.

It took until January of 2006, before home heating oil cracked, and stayed at about the $2 mark.

Oil was in the $2.50 range in January of 2007. That’s $2,000 to heat that “average home” … more than double the cost of 2001.

In February of this year oil prices had skyrocketed to $3.65 a gallon. In one year the cost had gone up almost $900, not quite a 50 percent increase. And today the price is $4.50 or so with no end in sight.

But even as prices have gone through the roof, the Bush Administration has seen fit to cut Low Income Heating Assistance by 20 percent. “Let ‘em freeze “ appears to be this century’s version of “let them eat cake.”

And if you are thinking that brand spanking new pellet stove is the answer, better think again. Pellets come from compressed wood shavings, the itsy-bitsy-teeny-weenie pieces left over when trees are milled into lumber, etc..

Oopsy….home building and remodeling have come to a virtual standstill. It’s a safe bet, say those who sell them, that pellets will go up 10 percent or so per ton.

So while John McCain talks about reducing the price of gasoline by 12 cents a gallon, no one is having anything even closely resembling a true substantive discussion about the tens of thousands of people who will have to decide this winter whether to eat … or freeze.

And that says nothing about the economic impact. Imagine how much money is being lost to the economy because people are sending money to OPEC and not buying cars, clothes here in the U.S. With the projected price of oil just continuing to go up ,that anemic “stimulus” check you received in the mail was eaten up by increased cost of home heating oil.

And about that barrel of oil, experts believe upwards of $30 of the current cost is due to speculators. Those are folks who would buy and sell just about anything, anywhere, anytime if they could make a buck on the increasing price. Another $20 is due to the depressingly depreciated value of the American greenback, which is worth a little more than the Mexican peso … but not much. Another $10 is for what they call “fear factor” like terrorist attack, ruptured pipe, or probably another three cars bought in India.

That means the “real” cost of a barrel of oil should be around $70 or so.
How do we get there? One simple way I think is to require larger margins for those who speculate in oil and require those who buy futures to hedge their bets o take delivery. You can purchase oil futures at $139 a barrel, but you have to put more of your own money up front, and you have to actually take delivery and pay for the stuff.

My guess is that would wring the “speculators excess cost” out of the market pretty quickly as the fellas on Wall Street who have been trading up oil would suddenly have to buy storage tanks. These folks don’t want to own it, they just want to buy it low, convince everyone there will be a shortage of it, and then sell it for a profit. And the next leech does the same thing.

I know, I can hear the “free market” folks screaming that things would be worse if it weren’t for speculators and how they actually “temper” market fluctuations.

Right. And I believe in Snow White and the Tooth Fairy. If this is what happens when the market regulates itself then it is time for government to step-in and protect its citizens. That is what government is supposed to do, isn’t it?

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posted by: jimcooncat on July 1, 2008  7:32am

I very much agree with your viewpoint. Our reliance on heating oil has got us very much in a bind. Reviewing my own situation, I’ve come to the conclusion that on a personal level, storage is the key.

I fill up my oil tank, and it will run out when the price is high. The oil dealers don’t want to deliver less than 100 gallons at a time—who could blame them when it costs so much to deliver? So now you have to pony up $450 for a delivery; this year maybe $550. Can’t do that without advance planning and a good steady income.

So, being in Central Maine, I’ve decided to go the pellet route. I considered a wood stove, but to my surprise pellets take a third of the space to store than firewood (and much nicer to store). I’m estimating to go through 3 to 5 tons, each which fits on a standard pallet, and prices here are around $250 each.

As for your Connecticut readers, the supply situation might not be as gloomy as you think. Because you can store it up, you can deal with it ahead of time and reduce the panic. NYC might be a different story though. I believe there is a lot of potential in your area for entrepreneurs or smart co-op minded people.

An excellent forum for those interested (I haven’t notice a lot of ads on it):
http://www.hearth.com/econtent/index.php/forums/viewforum/22/

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