Energy Alternatives

Oil’s Ups and Downs

Oh, the commodity of oil, how its price changes and bends at the drop of a hat. Since December, when prices were at the $70 mark, oil has taken a ride all the way up to $82 earlier this week. An increase like that must have some serious dynamics behind it! We’ll examine a few of those factors as we continue to see the price almost double since this same time last year.

One of the most obvious reasons that oil has risen so speedily is thanks to good old Mother Nature. One of the coldest winters is currently hitting the U.S. Northeast. Record snowfalls in New England have increased the home heating oil demand. According to the International Energy Association (IEA), nearly 8.5 million homes use oil as their main source of heat. While many of those homes try to get their expected need of winter oil delivered in the summer months to avoid extreme prices, their tanks do not hold enough to carry through so many seasons. The Northeast is not the only area feeling the cold and ordering extra oil for heat; Florida is expected to barely reach 60 degrees, whereas the average is generally in the 70s. Many southern regions are even dipping to subzero temperatures.

More specific and less frigid factors in the rise of oil prices are the stockpiles, which are also on an up and down scale, and the operations of refineries. Stockpiles themselves are a constant issue, as is with any business, as a result of supply and demand. Recently, there has not been a great demand on oil, so the inventory kept rising, driving prices down. The excess of oil remained in the millions of barrels while the draw and need was only in the hundred thousands. Floating offshore storage had even reached over 150 million barrels on these vessels in September. If refineries continue to produce at 80 percent capacity, as they have in recent weeks, those inventory numbers will slip. In fact, at least five U.S refineries have closed their doors this year due to the weak demand and stockpile overflow. Decreasing the operations will still allow production, just at a slower output rate.

Just as a drop in a lake will cause a ripple effect, it’s not just U.S factors that will be driving oil prices. World events often are just as essential. Take, for example, China’s economy; it has expanded in such a flurry that it is becoming one of the lead nations in energy consumption, and the demand for oil in China is rising. Constant unrest in Middle Eastern countries and the position of OPEC are also heavily weighed when it comes to petroleum products and the value of the same. Commodities are like soup. When all the right ingredients are there, everyone is satisfied with the outcome, but one wrong measurement or element and the soup is either useless or only one individual will take a liking to it

Glen Sokolis is President and Founder of Sokolis Group. A fuel management and consulting company that works nationwide.