Heating oil costs less than last year

But fall doesn't keep up with crude's drop

The price of heating oil has plummeted more than 44 percent since July, a drop so dramatic that in Massachusetts heating oil is now about 60 cents less per gallon than it was a year ago.

Still, heating oil prices have fallen more slowly than the price of crude oil, which is used to make heating oil, gasoline, and diesel fuel. Yesterday, crude dropped again, closing at $43.67 a barrel on the New York Mercantile Exchange, nearly 70 percent below its July peak of $145.29.

One analyst says the disparity can be partly attributed to a decreased demand for gas due to the recession. Neil Gamson, an economist with the Energy Information Administration, the statistical arm of the federal energy department, said refiners are trying to use heating oil to make up for diminishing gas profits.

"This is the heating oil season, so there's demand for that," Gamson said. "And, in the case of gasoline, it's not the driving season."

Michael Ferrante, president of the Massachusetts Oilheat Council, a trade group, said Gamson's explanation is plausible. But he also noted that, historically, retail heating oil prices have never gone down as quickly as crude prices.

"There typically has been a lag time as wholesalers and retailers work through whatever [higher-priced] inventory they have," Ferrante said.

And there are other factors that keep the price of heating oil from declining as quickly as consumers might expect, energy analysts said, including production and distribution costs that rarely fluctuate. In 2006, the Energy Information Administration said, the price of crude accounted for about 60 percent of the cost of a gallon of heating oil. Refining accounted for about 16 percent of the cost, and marketing and distribution made up the other 24 percent.

The average price for a gallon of heating oil in Massachusetts is currently $2.63, according to the Massachusetts Department of Energy Resources. Some expect it could fall as low as $2 this winter. Thank the slumping economy.

"Because of the recession, people are using less crude oil products," said Mary Novak, an economist at IHS Global Insight, a Waltham forecasting firm.

According to the state energy department, Massachusetts dealers this week were selling oil for as low as $2.07 and as high as $3.05, partly because of the inventory backlog Ferrante noted - different dealers bought oil at different prices. Tancred Lidderdale, another economist with the Energy Information Administration, cited another explanation for the wide range in prices - there may be delays in getting newer, lower-priced heating oil from refiners to retailers.

"Part of that lag [in the lowering of prices] is the time it takes to move heating oil, whether it's coming from Europe or the Gulf Coast, because New England imports a large share of its heating oil during the winter months," Lidderdale said.

Ken Williams, of Scott-Williams Oil in Quincy, said his company put many of its 4,000 South Shore customers on payment plans earlier this year, when many of them were frantic about the prospect of monster oil bills this winter.

Other dealers stopped offering customers locked-in prices - a good move in hindsight, Williams said.

"If you were locked in at north of $4 a gallon, even though you did so with the impression that it was only going to get worse rather than better, would you be happy about your position or unhappy about your position now that it's down closer to $2 than $5?" Williams said.

Today, he added, his customers are happy because the company was recently able to reduce budget payments.

"I think they're looking at it as an early Christmas present," he said. "It's one of the bright spots in the economy now."

Even so, Philip Giudice, commissioner of the state Department of Energy Resources, cautioned consumers to conserve and not become complacent.

"I would expect prices would go back up - maybe even higher - and the question is just 'When?' " Giudice said.

"Enjoy the price breaks we're getting," he said, "but invest whatever money and time you can to make sure your house is as efficient as possible."

Erin Ailworth can be reached at eailworth@globe.com.