The sources to the left are an eye opener into what’s
happening in the volatile energy market. We read these
sources every day, as well as consult with our suppliers.
The biggest problem for the last few years has been the
presence of major commodity speculators who drive the price up
and down on a moment’s
notice without regard to basic supply and demand. Trading
by speculators added as much as $50.00 per barrel of
oil to its real fundamental price in recent years, producing
price jumps on rumors of problems in Iraq or Nigeria
or hurricane forecasts.
Since 1999 we've achieved discounts of up to 50� a
gallon on oil and kerosene, and from 50� to $1.00 on
propane with the exception of 2006 where again we
offered excellent discounts on propane, but for the
first time since 1999 our oil savings were much less
significant due to the El Nino.
In 2007-2008, our lowest price for oil, $2.38/gallon
was $2.50 below the high cash/market price in February,
2008. Our lowest propane price, $1.74/gallon was over
$2.50 below market prices.
What's Happening in
2008-2009??
We had planned on going to bid in late February.
However, we woke up one morning in early February to
find that Exxon had frozen $12 billion of Venezuela's
assets in court and Venezuela had reacted predictably by
threatening to cancel oil shipments to the US. The price
shot up 50 cents per gallon and never came down again.
There are several problems; this country's enormous
debt, the subprime crisis, lowering of interest rates by
the Federal Reserve Bank and the unrestrained printing
of money have devalued the value of the dollar
substantially. Since oil is pegged to the dollar, this
has helped run up the price of oil. Another problem is
speculation. There is no
question that crude oil is overpriced. In the
commodities market, money is chasing money. The question
is how much? Hedge fund operators like George Soros have
testified to Congress that they see a possible "bubble
in the commodities market. . The question is if and when
it will break. A
final piece of the puzzle is the fact that Lehman Bros
has predicted that about 2 million barrels a day of new
oil will hit the market early next year. So, there
is a good chance that oil prices will actually decline
in late 2008 or early 2009. See this article
written for laymen:
http://www.pittsburghlive.com/x/pittsburghtrib/s_569868.html
OR
http://money.cnn.com/2008/05/30/news/economy/oil_cftc/?postversion=2008053110
OR
http://www.otchoice.com/here_comes_the_oil_bust.htm
To see for yourself some articles about the
commodity "bubble", copy and paste those two words in
Google and look at the results or click
on
commodity bubble.
June 10th, 2008 Update:
Many dealers have now come out with pre-buys in the
$4.50/gal to $4.90/gal range. We still feel that oil is
overpriced and that a substantial drop will occur this
fall sometime. We sent the Survey below to 400
members on Tuesday.
Dear Our Town Members,
For nine years we�ve always secured fixed price offers
for you. Usually, we�ve secured our prices long before
now. But I�m sure you know that the energy market is
crazy right now. We hear it every day on the news. We
here at OTEA are concerned that this may be a price
�bubble� that will break.
This
is the first year we are leaning towards �rack plus�,
the approach usually reserved for commercial
establishments. It means that you pay market
wholesale
price for the day you buy your fuel plus an
administrative
margin for that dealer that OTEA has agreed to. Prices
will fluctuate daily. With �rack plus�, if prices go
down as they did due to the El Nino in 2006, you save
money. If they go up, it costs you more.
However,
Fixed Price programs have a downside also. If you lock
for the heating season price you�re obligated to
purchase that fuel at that same price even if market
price go down.
We are conducting a survey of a small group of our
members. Based on what you know now, which
of the following programs would you choose for this
season.
Pre Buy
Pre Buy with 40� CAP (price
protection) if available
Fixed price Net 30 (Required to purchase fuel ordered)
Fixed Price Budget
Fixed Price Budget with 40�
CAP (price protection) if available
Rack Plus
(What is It??)
Apparently, a lot of our members agree with our
opinion of the market: The results of our Survey above:
65% chose "Rack Plus", 16% chose Fixed Price Net 30, 8%
chose Fixed Price Net 30 with a 40� CAP (if available)
and Pre-buy & Fixed Price Budget split 10%.
Based on the survey, we
have decided to split our bid offer this year. First go
round would be Propane pricing including the Net 30
program and an offer to sign up for "rack plus" for oil
& K1. the second go round for Pre-buy and fixed pricing
for oil & K1 would happen when and if prices warrant.
More
Information on "Rack Plus"; Definition & Resources
Research Sources:
What Is an El Nino??http://www.pmel.noaa.gov/tao/elnino/nino-home.html
Picture of the Jetstream: http://www.pmel.noaa.gov/tao/elnino/report/figure19.html
First El Nino Release 9/13/06: http://www.noaanews.noaa.gov/stories2006/s2699.htm
NOAA predicts mild winter: http://www.noaanews.noaa.gov/stories2006/s2716.htm
El Nino kills hurricanes Nov '06 http://www.noaanews.noaa.gov/stories2006/s2748.htm .
By the way, “Energy Basics” by the US DOE is a great
site for a child doing a paper on energy. It’s all there.
For more news from the energy market check the resource on
the left.