Heating Oil Prices Hit Home Owners, Suppliers

WNYC — Wednesday, September 3, 2008

Download the following as an MP3 audio file. Interviewees include Wende Nachman, President of the NJCA Oil Group.

By Ilya Marritz

NEW YORK, NY — Consider this: in January 2007, a barrel of heating oil cost about a $150. A year and a half later, the price has more than doubled. Despite the recent dip in the price of crude, the small suppliers who sell home heating are so. WNYC's Ilya Marritz reports.

REPORTER: This is one issue that hits politicians the same way it hits their constituents. New Jersey Congressman Scott Garrett got the bad news when his oil delivery man called him on the phone a few weeks ago.

GARRETT: It will be up an increase of over $100 per month to heat the house.

REPORTER: The Republican from northern New Jersey's Fifth District says he expected his oil bill to go up. But more than a thousand dollars for the year?

GARRETT: We're gonna have to obviously turn the thermostat down for those cold nights and wear sweaters and all the rest.

REPORTER: All across the state, oil suppliers have been calling their customers with a simple message: we're gonna have to charge you more next winter. But please don't blame us. Sure, ExxonMobil may be riding high, little guys like us are tanking.

MILLER: You get to a certain bottom line and you just can't absorb anymore.

REPORTER: Ed Miller runs Skylands Energy in Raritan, N.J., and is President of the Fuel Merchants Association of New Jersey, a trade group.

Sounds fancy, but it's not. Most oil suppliers are mom and pop operations, with a few thousand customers. Ed Miller says the soaring price of oil has put them all under tremendous financial strain.

MILLER: Our terms with our suppliers have never changed, it's a net 10 days EFT. So when I send a tractor trailer to Hess and lift 8,000 gallons of heating oil they draft that out of my account in 10 days.

REPORTER: Think about it: ten days to pay $35,000. If you're used to paying $17,000 for that amount of oil, it's a big stretch.

But it gets worse. Ed Miller says his customers are also taking longer to make their payments.

MILLER: And not because they've gotten lax about their responsibilities, they just can't pay, it's taking longer.

REPORTER: Ed Miller's margins are shrinking, and for the first time, a business that once seemed reliable, a sure thing, now feels shaky.

Eric DeGesero is the vice president of the Fuel Merchants Association, and tireless in-house strategist for the group.

DEGESERO: Things have become unhinged from the fundamentals of supply and demand because when you look at when you look at when oil was eleven dollars a barrel ten years ago, worldwide demand was about 75 million barrels a day...

REPORTER: It's complicated, but DeGesero's basic idea is that with the world economy faltering, cunning investors have figured out that oil is one commodity that definitely won't lose value. In fact, if you buy and store enough of it, the value shoots up. So they're hoarding it in lightly-regulated overseas markets.

DEGESERO: ...You've seen a fourteenfold increase in price without a comparable increase in demand.

PALLONE: DeGesero, DeGesero, yeah I know him.

REPORTER: Congressman Frank Pallone is a Democrat, representing Middlesex and Monmouth counties. He says agrees with Eric DeGesero's view of the problem.

PALLONE: Oh I think there's speculation, absolutely. And in the House we've tried to pass legislation to address it.

REPORTER: Speculation. The word has become almost an article of faith for Democrats.

In June, the Democratic-controlled House voted overwhelmingly to give "emergency powers" to the Commodity Futures Trading Commission to curb speculators, such as setting stricter position limits for oil traders.

Some Republicans voted with the Democrats to support that bill, which is now stalled in the Senate. But remember Scott Garrett, the Fifth District Republican whose own oil heat bill is going up about a grand this season? He voted no.

GARRETT: Eric makes a great case on the role the speculators can potentially play in this marketplace. But I would say while they can play some role in the marketplace, I would say there are there are other things as well.

REPORTER: Like the weak U.S. dollar, and diminishing American output of oil. Garrett would like to see new offshore drilling, and a poll last month shows that for the first time, most New Jerseyans would support new oil rigs, even off the coast of Atlantic City or Asbury Park.

That should help Garrett, but this year he has a strong challenge from a Democrat who says stopping speculators is the better answer.

The voters will make their choice in November. But in the meantime, people are just looking for ways to spend less money on it. Wende Nachman runs a heating oil co-op that offers consumers a discount of as much as 20 cents a gallon by buying in bulk.

NACHMAN: We've had record months every month, of new members joining our oil group. We've increased our membership by a third.

REPORTER: The New Jersey Citizen Action Oil Group is open to anyone who wants to become a member. Nachman has been been stunned to see who's joining.

NACHMAN: It's not just low income that are hurting. It's middle income. Most of New Jersey works paycheck to paycheck and they don't have the extra $600 lying around for a minimum delivery of 150 gallons of heating oil.

REPORTER: Ed Miller says when he took over Skylands Energy 20 years ago, he thought he'd make good money selling heating oil at a fair price to people who could pay it. He didn't figure he'd be knocking on doors, two, three, four times, and looking for find ways to cut his overhead.

MILLER: Had I known then what I know now... But I still love it, I love the customers and dealing with everyday people. It's just become very difficult on the financial side.

REPORTER: Even if next winter is mild, Miller says, it will be very expensive.

For WNYC, I'm Ilya Marritz.

Copyright 2008 The Star-Ledger

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