Special Reports

'Curious' About High Heating Oil Prices

BOSTON (WBZ) ― If you're struggling to pay high gas prices this summer, just wait until you have to heat your home this winter, especially if you use oil. That's one of the things a lot of people are talking about on wbztv.com/curiosity.

People are wondering why heating oil costs more than gasoline right now when it's usually the other way around. One thing is certain, heating oil prices are going through the roof.

"Last winter was a bargain compared to what we're facing this year," says Tom Hyde who heats his Northborough home with oil. He's bracing for a shock. "The price I would pay last year was about $600 for that delivery. This year it's almost $1200," he says.

Heating oil prices are always a worry here in the Northeast, the area of the country most dependent on oil heat. But this year something unusual is happening.

Lois from Ashby asked the question on WBZ's "Curiosity" website: "I'm curious why home heating oil costs more than gasoline," she wrote. A great question because it's usually just the opposite, gas is historically more expensive. After all, heating oil is less refined and doesn't have all those taxes. So what gives?

"It's a scary situation," says Michael Ferrante of the Massachusetts Oilheat Council. He says you have to look at the different products that are made from a barrel of oil.

Heating oil comes from what are called the "middle distillates," which are also used to make diesel fuel, and that's key. "The middle distillate part of the barrel has become vitally important, almost more important in many economies than gasoline. There are many diesel powered cars in China and India," says Ferrante. That worldwide demand for diesel pushes up the price of heating oil, too.

But there's something else. "Market speculation," says Ferrante. He's talking about hedge funds and other speculators who aim at the middle distillate market. They never even take delivery of the product, they're trading in paper. "You can purchase contracts for that and overnight the value of the contract can rise significantly. So they're learning that by investing in the commodity of heating oil and diesel fuel they can make money on the world markets," says Ferrante.

Ferrante says that by cracking down on trading loopholes, prices will come down a lot. "Economists that follow the market believe that if we close some of the loopholes in market speculation we could drop the price of crude by 25%," according to Ferrante. And that would lower prices for both gas and heating oil. The stakes are high.

"We've never seen anything like what's about to hit us," says Joe Kennedy who runs the Citizens Energy Corporation which provides heating assistance to the needy.

He says it's not just the poor who are going to be hurt. "Families earning 50, 60, $70,000 a year, they've never had to budget for anything close to 5 or $6000 to stay warm in the wintertime. Kennedy also says the big oil companies are not putting nearly enough resources into finding new sources of oil, or investing in alternative energy. He also says the federal government must increase the amount of money it spe