Schumer, Citing Oil Companies’ Greed, Calls for Government Action to Lower Heating Oil Prices

Sen. Chuck Schumer Photo: nypost.com

Senator Chuck Schumer (D) of New York called a press conference Sunday, during which he stated that heating oil prices are not falling as fast as crude prices, and that greedy Big Oil is to blame. Citing his own research (most likely done by his staff), Schumer noted that the price for a barrel of crude oil has dropped by 50 percent since its peak price in July, while the price of heating oil has only dropped 12 percent in the same period of time (source: newsday.com).  He also noted that gasoline prices had dropped more than heating oil prices (23 percent since July), but that gas prices are “still not where they should be.”  He called for the Federal Trade Commission to warn oil companies across the country to lower their heating oil and gasoline prices to match crude prices or face “stiff penalties.”

Schumer has been a longstanding ally of heating oil consumers. No matter your politics, you must acknowledge that he has brought heating oil issues to the fore of national discussion on more than one occasion, and has been instrumental in securing additional HEAP funds for low-income households in the State of New York.  In this case, his statistics shed light on a frustrating reality: the price of crude has dropped tremendously over the last four months, and heating oil and gasoline prices have only declined modestly.  While oil companies’ hunger for profits is certainly one explanation for this situation, it is not the only one.

Heating oil and gasoline tend to follow the same price trends as crude because crude is the main ingredient in both fuels, but the correlation among the three is not directly proportional or even consistent.  It is important to remember that crude, heating oil, and gasoline are all traded as separate commodities on the New York Mercantile Exchange, and therefore go through independent buying and selling cycles.  Furthermore, heating oil and gasoline have opposite demand seasons, with demand for heating oil trending upward in the winter and demand for gasoline trending upward in the summer.  Also, the production and distribution channels of heating oil and gasoline are very different.  Huge multinational oil companies manufacture heating oil from crude and then sell the heating oil to local distributors around the country, who then sell the oil at retail prices to consumers.  Gasoline is a different story–”Big Oil” companies like Shell and Exxon control the gas from the crude pumps all the way to the gas pumps–the producer, manufacturer, and retailer are all the same company.

Decades of collective experience have taught the HEAT USA price team that today, the only dead-certain prediction in the price of heating oil is uncertainty.  It’s this uncertainly that led HEAT USA to create the Fair Price Protection Program, which limits how much heating oil providers add to the wholesale price when setting daily retail prices.  HEAT USA members are assured that, if the market price of wholesale heating oil drops, their retail prices drop immediately.  Under Fair Price Protection, heating oil retailers’ profit margins are fixed to a specific number of cents per gallon.

Whether or not Senator Schumer’s call for action is heeded by the FTC, the crude oil and heating oil markets will continue to bounce up and down in the coming months, and the best and most reliable support for consumers is the support of large buying groups like HEAT USA and the guarantee of fair prices that they provide.