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topsy turvy
Keeping in mind that hindsight is 20/20, oil futures for the
following winter are usually cheaper early in the year and gets
gradually more expensive later in the year. It did not happen
that way this year. High prices in the Spring were followed by
a big drop in price at the end of May, immediately followed by a big
jump in June, a price crash in early July of 30¢, a 30¢ plus
increase in August followed by another big crash and now its on the
up cycle again. See the chart of the January 2011 futures option
below.
What is happening? What does it mean? Why it is going up
again?
From this point of view, it appears that the down cycles are the
reflecting the real world of constantly bad news about the economic
recovery in Europe and America. Job growth is less than population
growth, Spain, Greece, Ireland and Portugal have been deprived of
AAA ratings (Greece just above junk bond status), OPEC is predicting
that oil demand will not increase until the end of 2011, economists
are now discussing the possibility of a double dip recession, and
current oil supply on had is almost 10% over the 5 year average. The
upcycles are due to speculators hoping (and betting on) short term
events, such as companies with positive income reports or some
positive economic indicator. But every positive indicator lately
seems to be followed by a negative one. The current price jump is
apparently due to speculation that Hurricane Earl might damage rigs
in the Gulf and that new regulations might impede deepwater oil
production.
At this time, it's impossible to predict any direction of the market
and oil prices until there is some stabilization of the global
economy. It is almost September 1st and the current rack prices of
our dealers are lower than the lowest pre buy offering. Back
in July when we finally locked in, I recommended filling up tanks
immediately, then half pre buy and half Rack Plus for your oil
needs. I'll stick with that, though I don't think one would lose
much if anything with straight Rack Plus. Good things come to those who wait
Sometimes old sayings are true. Speculators have really pulled
a number on us this year. How they have kept prices up all year in
the face of the biggest recessions in Europe and the United States
since the Great Depression is a wonder. This story about a
drunken oil trader tells
one how easy it is to fix the market.
Well, we waited, bought a some a while ago. Some dealers did well,
some bought a little too early. The prices dropped again in the
last three days after skyrocketing up due to the hurricane
predictions.
To make a long story short we bought more oil yesterday, July 1st,
2010. We've
locked in prices on oil and propane with all our dealers. You'll be
receiving emails regarding final pricing over the weekend. 7/1/2010
So it turns out the expert WERE right in predicting a big price
drop a la 2008. Prices are finally catching up with supply and
demand but it took the downfall of several European countries
and the crash in value of the Euro to do it.
We welcome a new fuel dealer to Our Town Energy Alliance,
Lampron energy of Gorham Maine. They cover western Maine and
eastern New Hampshire. Presently, they have the best fixed
pricing of any of our dealers at $2,599/gallon. Fielding Oil &
Propane is next at $2.69/gallon. Incidentally I am happy to
report that, Fielding's, who joined us last year has had the
best rack plus pricing of any dealer over the last twelve
months. Their $1.98 pre-buy was the also the best price of any
dealer. Eastern was second at $1.999. Member comments have been
uniformly high.
Eastern Oil & Propane and OTEA jumped a little too quickly on
Eastern's pre-buy. We bought at $2.79/gallon after the first big
drop and when prices started moving upward again. Knowing that
there was a 50/50 chance of the prices dropping again, we only
bought half of what we planned. When we feel that prices have
bottomed out we'll buy again and blend the second buy with the
first. At current market, we hope the blended price will
be in the $2.65 or under range. Actual price will depend
on prices at the time we buy. All those who bought the oil at
$2.79 will be set up at the new blended price and receive a
credit for the difference.
Once again, for about the third year in a row, we are having
problems coming to terms with Irving on price. Their quoted
pricing to us is currently running about 20¢ per gallon higher
than Eastern's, and 40¢ above Lampron's. We have not
accepted their bids to date. We hope that, as in past
years, the will eventually pare down the price offered to us if
we say no long enough. But we are concerned that if they don't
move soon, we'll lose the current buying opportunity.
BANKS WE BAILED OUT CHEATING US?
As
you know from our earlier posts, the market has been impossible to predict
this spring due to speculation overriding the fundamentals of supply and
demand.
Goldman Sachs with 1.1 trillion in assets has led the charge in overpricing
oil. Thus, I for one am not unhappy to see them get caught with their hand
in the cookie jar. I'd be happier when their manipulation of the oil market
has been proven. Part of the reason we have been waiting for prices to drop
is the expected imposition of financial controls on energy speculation by
Gary Gensler, head of the CFTC. Depending upon what he does, heating oil
prices for next winter could drop dramatically. If the controls are
ineffective or don't pass, prices will continue to climb.
Seventy five per cent of the
major players in the oil industry feel that speculation has added $10 to $30
per barrel to the cost of crude oil See
"Financial
Speculation Seen Boosting Oil Price, Reuters News". The CFTC "has
proposed limiting the number of futures contracts financial players can hold
at any one time".
Though the proposed restrictions
do not go far enough to really prevent them from continuing to game the
market, the major banks and hedge funds are united in their opposition. See
"Big Banks,
Shell Blast CFTC Position Limit Plan".
The American Gas Group, an
association of 195 energy companies and utilities, fuel distributors, the
American Feed industry, Americans for Financial Reform and millions of
voters in New England and the Mid West support the introduction of these
limits which would curb if not end speculation. See article
"...CFTC Energy Speculation Limits", Bloomberg Business Week.
Now that we are finally close to
seeing the CFTC put in rules to clean up the casino, I urge you again to
call your Congresspersons and Senator and express support for strong limits
on energy speculation. It would not hurt to contact the CFTC also at
202-418-5000, 202-418-5521 fax, 202-418-5514 TTY, or
questions@cftc.gov. A $15.00 per barrel drop in the price of a
barrel of oil reduces heating oil prices by almost 40¢ per gallon, a $30
drop results in double savings.
ST PADDY'S DAY UPDATE
How do speculators
disrupt the market?
Goldman Sachs made record profits this year and distributed record bonuses. In
fact the percentage of net profits devoted to bonuses was almost 50%, prompting
one pension fund to sue the company on behalf of shareholders who feel they too
are entitled to some of that profit. Goldman, Morgan Stanley and a few other
institutions "too big to fail" have made much of that money in manipulating
commodities, especially oil. One manipulates the market by altering expectations
of either a) supply or b) demand. In the summer of 2009, the big players rented
144 oil tankers to store almost 700 million barrels of oil (30.8 billion gallons
of oil) on the high seas. This, in addition to additional storage in rented or
purchased oil terminals and storage depots on land. In fact, Goldman Sachs led a
consortium in 2006 that purchased 21% of all the ports and associated
warehousing, etc in England. Goldman and Morgan Stanley are now big players in
'warehousing'.
Goldman was taking advantage of a situation known as "contango" where current
prices (in May, 2009 for June 2009 oil futures) were cheaper than prices for
futures for the winter months of 2010 (more on that later). In the summer of
2009, there was a worldwide glut of oil. By purchasing that oil and taking it
off the market they actually decreased or tightened oil supply somewhat,
although oil supply even today is higher than the five year average. Could the
removal of 30.8 billion gallons of oil from the open market affect oil supply
and pricing? "Hell, yes", my grandfather would have said.
But why was there "contango" in the first place? Why were oil futures for the
winter of 2010 so much higher than oil that could be bought last May for June
delivery? Remember 2008 when Goldman Sachs was touting "Buy at $150 per barrel,
it's going to go up to $200 per barrel!! It took the King of Saudi Arabia to
break Goldman's bubble. King Abdullah insisted that speculators were driving the
price as oil supply then was more than sufficient, Goldman Sachs, Morgan Stanley
and President Bush (an old oil patch hand) insisted that it was not. The
gauntlet thrown, King Saud pumped an extra 2 million gallons a day for a few
days and the market crashed, dropping at its low point to about $35 a barrel.
Big investment firms like Goldman Sachs and Morgan Stanley have two major arms,
the economic forecasting side that tells millions of small investors what
Goldman thinks the price of oil will be tomorrow or next June; and the trading
arm that gladly takes the money of all these small investors who follow
Goldman's advice. These firms do not play on a level playing field with the
rest of us. Their computers have special access to the markets and can make
almost instant trades, making hundreds, perhaps thousands of trades per day in a
particular area. They make money when the market goes up or down.
But how do Goldman Sachs predictions about demand a year from now, based
on their 'informed' guesses about economic indicators, oil supply, the strength
of the dollar actually change demand?? Fifteen years ago, the only people in the
commodities market trading oil were actual producers and wholesalers/end users.
Today 75% of all the trades are by banks, hedge funds, private investors and
other speculators who do not want the physical oil only the ability to buy and
sell the paper at 10% down for a 42,000 gallon contract. The important thing to
remember is that it is no longer a market, it's a Casino! The volume of trading
far exceeds the actual volume of oil available. When you buy an option for a
contract for oil delivery in January 2011, you are buying it from a party like
Goldman or Morgan Stanley who does not have that oil but is making a bet to
deliver it to you (who have no intention of putting 42,000 gallons of oil in
your basement) at that price. The other party is making a bet that he'll make a
profit at that price (buying it for less) and you are making a bet that you'll
make a profit at that price (be able to sell it for more). Multiply this times
thousands of millions of trades. One expert figures that each physical gallon of
oil is sold 20 to 25 times. Does this artificial trading demand (not related to
actual physical demand for oil) drive up the price of oil? You bet!
Can anyone accurately predict prices based on physical supply and demand
anymore? Not really. In the absence of financial regulation, one really has to
predict what the speculators will do rather than the market. The only apparent
constraint upon the speculators ability to manipulate the market is King
Abdullah of Saudi Arabia. He is happy with oil in the range of $70 to $80 per
barrel. He has the ability to pump 4 million barrels extra per day and flood the
market if speculators drive prices much higher than that. He has telegraphed his
willingness to repeat his actions of 2008 if price increases by speculators
threaten world economic stability. Ironically, it seems we must rely on Saudi
Arabia, a member of a cartel devoted to keeping prices high to keep speculators
from driving prices higher. Unlike hedge funds and investment banks, OPEC has an
interest in keeping world economies from going into the toilet.
What does this mean
for Our Town Energy Alliance and its members??
It means that we will pay more than we should for
oil and propane. In the short term Our Town Energy is watching the market and
waiting. We like most experts, feel that some warm weather will result in a dip
in prices for the winter months of 2011, probably in the next four weeks. We'll
negotiate fixed price contracts at that time. We still feel fixed price is the
way to go as we don't see Congress passing any financial regulations that would
prevent the current level of speculation. Thus we don't feel that prices will
drop for next year lower than pricing this Spring. Sadly, fuel prices should be
much lower based upon supply and demand but until we have a bipartisan congress
that refuses to accept lobbying cash from the banks and hedge funds it won't
happen. Don't hold your breath, as they say.
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RENEWAL TIME FOR 2010-2011
Prices have jumped since December 18th.
Although there is still a huge oversupply of oil and low demand by the developed
countries, such that
refiners are closing refineries, speculators are betting on increased demand by
the developing countries and recovery in the US "down the road". In the words of one analyst, speculators are betting
that "every Chinese worker is about to trade in his Schwinn bicycle for a
Cadillac Escalade" and that the day after tomorrow, most US workers will be
back on the job.
Oil futures for 2011 are in the $2.36 range (NYNEX cost
only), not including freight, differential and dealer margin). These
prices are very high compared to current supply on hand. So we are
back to mixed feelings about the market. If prices seem reasonable for
next year we would want to buy early in February as we did last year ($1.98,
$1.99, $2.11 early Fixed Price programs except for Irving who declined to
pre-buy in February).
As always, your best option is to sign up
before the end of January. That way if prices break and we do a Fixed Price
option, you are on board. Dealers will only accept paid up members for the fixed
price option, whether pre-buy, budget or Net 30. Note: Irving has tentatively
agreed to go along with and early Fixed Price program if other dealers do so.
However, if Irving does not provide an early Fixed Price program (assuming that
we feel conditions warrant it), we will break tradition and allow members to use
other dealers if other dealers are offering such a program.
We finally finished the Auto Renewal program,
by the way, If you click on that option, it will automatically sign you up and
charge your credit card every January until you cancel it.
We will be evaluating the market every day
from this point forward. for those of you who like to follow the details, here
are some articles pro and con on oil price predictions. Click to read:
OIL PRICES WILL BE LOWER
OIL PRICES WILL BE HIGHER
NO CHANGE IN PRICE
And an interesting article regarding the elephant in the closet:
- Great propane and early oil
pre-buy prices in 2009. Rack Plus prices just OK so far.
A mixed year so far. Our propane prices have been fantastic this year,
as much as $1.25 per gallon less than market price. We carried out early
pre-buys
with all our dealers except Irving who declined to participate in
February. Those prices were excellent. When prices increased, we
instituted Rack Plus pricing for new members and those who joined too
late for the early
pre-buys.
Rack Plus pricing was predicated on an El
Nino year
(warmer than average temps), highest supply of oil on hand in 26 years
and low worldwide demand. The speculators have managed to keep the price
up nevertheless. However, prices have dropped in the last few weeks (as
of 12/18/09)
- Rack Plus price
dropping-oversupply of oil and low demand
A sign of Happier Holidays is the recent price drop on oil; our rack
plus price today is between $2.30 and $2.39 a gallon depending on your
geographical location and dealer. Current market prices are between
$2.49 and $2.59 a gallon (as of 12/18/09). Still not as good as the early
pre-buys
of $1.98/$1.99 and $2.11 but heading in the right direction. The oil glut
is still with us and demand is weak. Oil prices, though fluctuating,
have been more stable than last year but are not yet dropping to where
we would like to see them
- El
Nino
effects minimal in New England
The predicted El
Nino is in full swing for the next three months but the current
warming forecast now currently excludes New England except for the warm
November we've recently experienced. See:
NOAA
Forecast
- We expect substantial Fuel
Price increases in 2010-2011 - Higher demand worldwide
China, India and Brazil on on their way to full recovery. The US and
Europe will swing to positive GDP growth in 2010. Oil demand will
increase and we expect higher prices.
- We plan on early fuel programs
in February. You MUST be renewed to participate. Join EARLY for the best
rates
Irving has agreed to an early
pre-buy
with our other dealers if conditions warrant, meaning all dealers will
do a pre-buy.
We think this will be the best pricing of the year. All dealers will
have budget and regular
pre-buy
(cash up front) programs; some will have tight contracts and
Net 10 or Net 30 payment terms. All dealers except Irving will probably
do a second and possibly third bid up to late Spring. I expect each
successive bid to be more expensive. Irving may or may not do a second
bid.
- Speculators - I don't expect
much relief from speculators soon.
Regulations to minimize speculation in oil are buried in the climate
control and
financial regulation bills. It appears that the Commodities Board
itself
is waiting to see what Congress does before they impose their own rules
such as requiring more money down to control future contracts.
- The 2 Gig Wind Turbine. We are
stalled on this project.
There appears to be no legal and inexpensive way to do what the Dutch do;
allow a couple of thousand small investors to put up a wind turbine. To open
the project to more than 35 investors, one would have to file with the SEC,
an expensive proposition. We intend to pursue it, however but probably with
fewer investors. We have talked to several members with very promising
sites.
- [EXPIRED!]Wood Pellets - We offered
wood pellets for sale this year ['09[] in response to member demand at
$249/ton.
Food for thought. At the following prices, the following fuels provide
equal amounts of heat in BTUs; oil @$2.38/gallon = Pellets @$279/ton
and = propane @$1.58/gallon AND; when oil @$2.13/gallon =Pellets @$249/ton
and = propane @$1.42/gallon
Halloween
It's the 29th and a beautiful NH Fall day. But so far,
October has been pretty scary for our Rack Plus program. Our prices have been
not much less than market price, and occasionally higher than market price for
the last two weeks of this month. The reason is that Rack Plus is tough when
prices are rising While others are posting last weeks (lower) price), we're
posting today's latest and greatest (and higher) price.
It works MUCH better on the way down. We're still waiting for that speculator
bubble to break. It broke about this time last year and we hope it breaks soon.
If and when that happens we'll save lots of money.
Meanwhile those of you who took advantage of our early prebuys with all dealers
except Irving who didn't want to do an early prebuy this year, are enjoying
$1.98, $1.99 and $2.11 a gallon, though you had to put the money upfront. Oddly
enough, we couldn't get people to take the pre-buys until prices rose and it it
was too late to purchase more. We think that the depressed economy discouraged
many from making large upfront investments.
We WILL be doing early pre-buys again next February. We think that Irving will
also participate in an early pre-buy this time around and will let you know when
that has been agreed upon.
On a different note, we have converted space in our barn to offices and will be
moving in the weekend of November 7th. In all likelihood we will be closed for a
day or so. However, we'll have a lot more space and by November 20th a new phone
system to replace our antique one with twice as many lines. This should make it
much easier for members to contact us.
October 9, 2009 Update
The Irving oil contracts finally went out yesterday night, Oct. 8th. We
apologize for the delay. Negotiations with Irving took much longer than
expected. And though we gave the list to Irving on September 14th, it takes a
while for Irving to check the list and accomplish the direct mailing.
The letter included from Our Town Energy Alliance does include an error. In our
literature, we have defined the heating season covered this year as Oct. 1 2009
through May 31, 2010. Inadvertently, the dates included in the letter are last
years dates. Please ignore them.
If you have a delivery between October 1st and when we receive your contract,
you will be credited back the rack plus price once we forward the contract to
Irving.
Wood Pellets are
here!! Click
here
Save 10% - 15% on your heating bill. Intellicons
are available again for a short time.
September 2009 Update
We have decided to go with Rack Plus for oil for the reasons
below in September update. Accordingly, several dealers are
reopening for membership for oil. See below. To check which dealers serve
you, go here.
| Dealer |
Oil |
Propane |
| Eastern |
Closed for Season |
Closed for Season |
| Fieldings |
Open for OIL - Rack Plus |
Closed |
| Gorham |
Open for OIL -Rack Plus |
50,000 gallons left. First come, first served.
See
prices. |
| Irving |
Closed for Season |
Closed - Contracts mailed June &
Sept |
| Lavallee Oil |
Open for oil-Rack Plus |
Does not sell propane |
We will be notifying members shortly by email and
mail. To join, sign up
here and then call 603-776-2500 to
pay for your membership.
September Update
At this time we are going with the "rack plus" variable discount (same as last
year).
We were on the fence whether to go with a pre-buy or do rack plus again. On
the one hand speculators are driving up prices while supply is building at
the rate of 1,000,000 gallons a day (See " Verleger
Sees $20 Oil This Year on ‘Devastating’ Glut " ) .
Also the fact that NOAA (National Oceanic and Atmosphere
Administration ) as of July 9th predicted an
El Niño . El Niño causes mild winters in the Northeast. In 2002 and 2006
we had El Niños resulting in a substantial drop in demand and drop in
price of oil during the winter.
Finally, the new head of the Commodities Board, Gary Gensler, has indicated
he intends to rein in some of the gross
behavior, specifically by considering position limits and whether non user
hedge funds should be allowed to use the CFTC to hedge.
See CFTC
On the other hand, seven of the ten indicators in the Index of Leading
Indicators, signal that the economy has bottomed out and is headed towards
recovery. See
Bloomberg News
Should the market change significantly (prices fall) we will try to secure
a lock in price.
May-June 2009 Update
It's been a strange year. We predicted early that pre-buy would be a good
idea. Except for Irving who chose not to buy early, our other dealers gave
us prices ranging from $1.98/gallon to $2.11/gallon beginning in February.
The inexplicable thing is that we had very little interest in fuel at those
prices until recently. We ran out of oil with Eastern about a month ago
but still have oil with Fielding's and Gorham at those prices as of
May 31, 2009. We think that people were wrestling with the idea of giving up
"Rack Plus".
As we suspected the speculators jumped in to the market again about the time
Eastern ran out on first bid. We've been waiting for prices to drop but
instead they have climbed steadily. There is absolutely no demand/supply
reason for this. We have the highest oil stockpiles in twenty years and
demand in the US and Europe is decreasing, not increasing. China is up 4%
in oil use last month but was flat the month before. I have been in touch
with Bob Moller, Energy Specialist in Congresswoman Carol Shea-Porter's
office regarding speculators. Shea-Porter sponsored a bill limiting
speculation last year (after she received 4000 emails/letters from our
members). Moller said Congressman Stupak* has introduced another bill to
ban speculators from the energy commodities market. It was attached to the
Climate bill which has a good chance of passing. Unfortunately, the
timetable for passage is October. Details of the bill are below, courtesy of
Mr. Moller.
Here is a link to the Climate bill:
http://energycommerce.house.gov/Press_111/20090518/hr2454_ans.pdf The
section you want to see is Sec. 351 on page 701.
Also, here is a link to the press release about *Mr. Stupak’s bill, which
Congresswoman Shea Porter will be cosponsoring:
http://www.house.gov/apps/list/speech/mi01_stupak/morenews/20090515pump.html
Where are we now?
Irving was late in wanting to bid this year. Though we had been
requesting bidding since mid-February, they felt it was too early and were
finally ready to bid on May 14th. By that time, the market had heated up. The
first bid was $2.29/gallon and we decided that given current oversupply
conditions, it would be prudent to wait. Similarly, Eastern ran out of the
$1.99 oil at about the same time. Prices have continued to climb for no
discernable reason except stock market euphoria and hype by Goldman Sachs.
When oil prices dropped by 3.5% in one day recently, Goldman Sachs, the same
company that predicted $200 per barrel oil last year (and needed a tax payer
bailout due to its subprime and commodity market losses), predicted $85/barrel
oil later at the end of the day, enabling the market to almost completely
recover its price losses. For some reason, investors listen to Goldman Sachs,
even though they know Goldman Sachs is a huge player in the oil market and that
when Goldman wins, a lot of small investors must lose.
See:
Oil Price Spike Looks like 2008-WSJ and
Energy execs worry oil rise just mood swing -Reuters
We are in "Watch & Wait" mode at this time and may consider "Rack Plus"
again if the market does not return to fundamentals, i.e. pricing more in line
with actual supply and demand. In the meantime, I would suggest
writing or calling all your Congressional representatives and Senators about
banning speculation in the energy markets on the basis of national interest and
security.
We will keep you posted here on the News Page. For more overall perspective
see "A Brief History of OTEA Energy Pricing"
Regards,
Dan
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