To her credit, U.S. Energy Sec. Hazel O'Leary is firmly refusing to intervene in heating oil markets this winter, including a ban on distillate exports.
A few U.S. Northeast congressmen, worried about higher prices and stocks 15% lower than normal, have urged her to sell oil from the Strategic Petroleum Reserve to create a distillate reserve in the Northeast (OGJ, Oct. 21, p. 30).
O'Leary recently met with 19 refiners to discuss the distillate supply situation in the Northeast.
She said they are all running their plants flat-out, but a couple will defer maintenance to keep distillate yields high.
She said DOE will review the operation of the futures market, which has discouraged inventory building because future heating oil prices are cheaper than current ones.
And O'Leary pledged DOE once again would study whether to establish a petroleum product reserve in the Northeast, and asked the National Petroleum Council-her oil industry advisory group-to do the same.
Big Brother not needed
But she warned it would be a serious mistake for the government to buy stocks now, at a time of tight supplies.
"The market certainly does not need Big Brother as a big buyer. It's obvious why not."
The Northeast and Hawaii have long wanted federally owned petroleum product reserves, but DOE always has resisted, because they are very expensive to maintain, partly because the products need to be "turned over" periodically.
Asked if industry's trend toward low inventories caused part of the heating oil problem, O'Leary said, "There is some risk of keeping inventories low. But remember, we tend to laud every other industry in the U.S. for exercising just-in-time inventory practices."
Jay Hakes, head of the Energy Information Administration, said everyone seems to agree on the facts behind the heating oil situation. "That's somewhat unusual, if you've followed energy issues over the years."
Hakes said, "The price of crude is projected to come down over this winter."
John Lichtblau, Petroleum Industry Research Inc. chairman, said refineries meet 95% of winter heating oil demand from current runs, and today's stock level "doesn't mean there will be a shortage. I don't expect a shortage at all. Unless there is an extremely cold winter, there will be enough heating oil to meet demand."
He said crude costs caused 80% of the heating oil jump. "We will go through the heating season with higher prices. I don't think anything can be done to change this."
Free market advocate
There are three interesting aspects to this flap.
One is that O'Leary-who oversaw petroleum price and allocation controls in the Carter administration as head of the Economic Regulatory Administration-has become such a devoted free-market advocate.
She said, "An artificial regulatory regime never approximates a marketplace."
Another is that everyone would be looking at the situation much more calmly if the elections weren't 2 weeks away.
And thirdly, the news media has decided this is a big story because there is a "shortage." But there isn't. Stocks are lower than normal, and prices are higher than normal, for transparent reasons. But there is no shortage now, and it's unlikely there will be one in January.
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