Takinging advantage of warm winter's impact on oil prices.Heating oil and natural gas heating demand is measured in degree days. A "degree day" is the measure of the mean temperature of the high and low under 60 degrees every day. There have been many less degree days this year than in past winters. Indeed, the northeastern United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. is experiencing one of the warmest winters in the last 100 years. Currently, New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of is at 68% of normal heating degree days Heating degree day (HDD) and cooling degree day (CDD) are quantitative indices demonstrated to reflect demand for energy to heat or cool houses and businesses. These indices are derived from daily temperature observations and power demand. . Heating consumption in buildings is down nearly 30%. Moreover, prices of fuel have decreased recently as supply is far outweighing demand and crude oil prices have continued to drop. Heat is not the only end product that heating oil and natural gas are used for on the east coast. Utilities use #6 oil and natural gas to make electricity. However, as with heating, with mild temperatures come little demand for electricity. With little demand, local power companies purchase inexpensive electricity from out-of-state sources where coal and other less expensive fuels are used. It is more economical to purchase electricity on the open market than it is to manufacture it locally in New York. This continues to add to the abundance Abundance See also Fertility. Amalthea’s horn horn of Zeus’s nurse-goat which became a cornucopia. [Gk. Myth.: Walsh Classical, 19] cornucopia conical receptacle which symbolizes abundance. [Rom. Myth. of supply in the New York metropolitan area New York–Northern New Jersey–Long Island is the most populous metropolitan area in the United States and the third most populous in the world, after Tokyo and Mexico City. . Thus far, this winter has been very positive for building owners, as lower demand has combined with lower prices. Prices are much lower than they were last year at this time, and are much lower than they were even one month ago. Crude oil has come down from its high of $79 to $52. However, OPEC OPEC: see Organization of Petroleum Exporting Countries. OPEC in full Organization of the Petroleum Exporting Countries Multinational organization established in 1960 to coordinate the petroleum production and export policies of its advises that it will defend prices if they continue to slide so it can be assumed that prices will not fall much further. As a building owner, how can you take advantage of low prices today for both the rest of this season and next season? Locking in a rate for the final three months of this season is easy: Fixed prices are available that are very close to those being paid today. It is more difficult to plan for next winter. Most traders Traders Individuals who take positions in securities and their derivatives with the objective of making profits. Traders can make markets by trading the flow. When they do this, their objective is to earn the bid/ask spread. seek to keep prices higher the further out one wants to buy because traders do not want to give away current discounts for use 10 months from now. This situation creates a contango Contango When the futures price is above the expected future spot price. Consequently, the price will decline to the spot price before the delivery date. Notes: This is the opposite of backwardation. market (a market when every future month is higher than the previous month's value." Every storage facility in the New York Harbor New York Harbor, a geographic term, refers collectively to the rivers, bays, and tidal estuaries near the mouth of the Hudson River in the vicinity of New York City. This is sometimes construed in the sense "the Ports of New York and New Jersey". is full of product. While refiners prefer to sell that product to make room for new inventory, traders prefer to retain that product until they can no longer profit from it. The contango market is so strong right now that even after paying storage fees and the cost of money, there is still a large profit to be made. So as long as traders can continue to make more money by holding the product, they will not sell it. Even though a profit cannot be realized until the oil is actually sold, that will not occur until the market dynamics change. As the weather turns colder, many believe it is too little too late. If summer does not bring any robust demand, and natural events such as hurricanes are not a factor, then the next heating season will likely be marked by large inventories of natural gas and residual fuel oil. As a result, the cash market may be very weak, as it is today. Accordingly, it is possible that relative to crude oil, refined products will continue to remain week. As a building owner planning for next year, if you believe that crude oil will rebound rebound (rē´bownd), n/v 1. a recovery from illness. n 2. an outbreak of fresh reflex activity after withdrawal of a stimulus rebound adjective to $70, you may not mind paying the steep contango. If you believe that the price of crude oil will remain close to where it is today, it is recommended that you either wait to buy or continue to buy market prices. BY CRAIG ROSENMAN, STUYVESANT FULE SERVICE CORP. |
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