Utility bills soar due to energy squeeze

A combination of factors has been driving oil and natural gas prices higher in recent months.

Published: Saturday, January 17, 2004 at 6:01 a.m.
Last Modified: Saturday, January 17, 2004 at 1:07 a.m.

Utility bills are soaring this winter, hurting homeowners and businesses alike, for reasons that have less to do with nasty weather than with tight supplies of natural gas and oil.

While brief cold snaps can magnify the impact by temporarily driving up energy consumption, what's been driving prices higher in recent months is a combination of factors including supply constraints, the economic recovery and the declining dollar.

With frigid air enveloping the Northeast on Friday - it was minus 39 in New Hampshire - oil prices settled above $35 a barrel on futures markets for the first time in 10 months.

Still, the most recent bone-chilling event for many Americans has been opening their monthly utility bill.

``I'm a cold-weather guy, I like the cold. But my budget can't take a true winter,'' said Jeff Forker, 42, of Overland Park, Kan., who has been unemployed for a year and keeps his thermostat below 65 degrees to save money.

Forker's natural gas bill for December came in at $206.03, compared with $133.90 last year - a 54 percent increase. ``If we get hit with a hard winter like we had two years ago, we're going to get pounded,'' Forker said.

This winter actually has been warmer than usual so far, according to the National Oceanic and Atmospheric Administration. Nationwide, there have been 10 percent fewer ``heating degree'' days - an index that reflects home-heating demand - from July through December, compared with the average for that period between 1971 and 2000.

But commercial inventories of crude, the raw material for heating oil, are at the lowest level since the government began tracking weekly data in 1982, ``and probably the lowest since the autumn of 1975,'' according to the Energy Department.

Meanwhile, the weakening dollar gives foreign oil producers less incentive to increase output since crude is denominated in dollars in world markets, analysts said.

On Friday, the price of oil for February delivery briefly hit $35.30 per barrel, before settling at $35.07 on the New York Mercantile Exchange. The last time the front-month futures contract settled above $35 was March 14, about a week before the invasion of Iraq.

``Right now, there's no fear of shortages,'' said Phil Flynn, an analyst for Alaron Trading in Chicago. ``But if you project out to the end of the year, people are worried.''

When U.S. inventories of crude fall below 270 million barrels - the so-called operating minimum - it can trigger reductions in refinery output, government and industry officials said. For the week ending Jan. 9, commercial supplies stood at 264.0 million barrels, or 33.7 million barrels below the five-year average for this time of year, according to the Energy Department.

Another pressure point on oil markets has been the high price of natural gas, as some utilities and industrial users that normally rely on natural gas have the ability to switch fuels when prices get too high - which then drives up demand for crude-derived products, analysts said.

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