- The Washington Times - Thursday, January 9, 2003

Residential heating costs are expected to soar up to 43 percent this winter as a result of the sharp rise in world oil prices caused by the cutoff of Venezuelan supplies and a looming conflict with Iraq.
The jump in costs for heating oil, natural gas and electricity for homes projected for the November-April period by the Energy Information Administration appears already to have helped stoke a drop in consumer confidence last month and one of the worst Christmas selling seasons in decades.
Many households still have not received their heating bills for December, but customers of the Washington Gas Light Co. are expected to have an average bill of $725 for the period, up $113 from last year, said spokesman Tim Sargeant.
Economists fear the increases will worsen the trend toward lower discretionary spending that dampened holiday sales.
This is bad news for an economy that has been running almost exclusively on consumer spending power for a year. An increase in oil prices two years ago amid a weakening economy helped bring on the 2001 recession, economists say.
"A high price is not in the interest of producers and consumers," said Abdullah bin Hamad Al-Attiyah, president of the Organization of the Petroleum Exporting Countries, which has called a meeting this weekend to consider raising production to quell prices averaging more than $30 a barrel in New York.
OPEC, which produces about a third of the world's oil, has targeted a price from $22 to $28 a barrel, a level that ensures ample profits for the producers, while not hurting consumers so hard that it forces the world economy into recession.
The United States and other consuming countries have called to boost output, and OPEC oil ministers are considering an increase of about 1 million to 2 million barrels a day to make up for the shortfall caused by the cutoff of supplies from Venezuela since oil workers there went on strike a month ago. The State Department said that it was appealing in private to several OPEC members, although it declined to identify them.
Partly out of hope that OPEC will increase production to alleviate shortages, the U.S. energy agency said yesterday that its forecast is based on the assumption that oil prices will stabilize at current levels for the rest of the heating season.
That would result in a 43 percent overall increase in heating oil prices for residential customers over last winter, a 34 percent increase in natural gas bills, a 20 percent increase in propane, and a 12 percent increase in costs for consumers who heat with electricity.
However, the energy forecaster conceded that prices could climb much higher.
The standoff between Venezuelan workers and President Hugo Chavez, who is seeking to replace them, could continue beyond this month, sending predictions awry.
Also, the winter might continue to be colder than usual; a war with Iraq might disrupt Mideast shipments; and other oil producers might not be able to agree on, or carry out, production increases. Any of these developments could result in higher prices.
The United States has been hit particularly hard by the loss of oil from Venezuela, which is the second-largest source of U.S. oil and gasoline imports.
With U.S. stocks of oil near 26-year lows owing to the Venezuelan disruption, "these are admittedly fragile assumptions," the agency said.
Mark Browning, general manager of rates for Potomac Electric Power Co. (Pepco), the Washington electricity company, said customers heating their homes through electricity would see their bills increase an average of 15 percent, mostly because of colder weather.
Customers who paid a bill of $515 on average last year can expect to pay $590 for the November-April period, he said, noting that "last year was a milder winter than this year."
Most consumers nationwide heat their homes with natural gas, which is not as directly affected by rising crude oil prices as home heating oil, a derivative of crude used mostly in the Northeast.
Natural gas prices, however, more than doubled in the past year because of production declines in the United States and Canada, according to the Petroleum Industry Research Foundation. It said consumers have been cushioned from the full effect of the price increases because their heating bills are governed by long-term contracts.
The biggest fallout from high crude prices may be yet to come, analysts say, a reference to the spring and summer driving season.
The energy agency is predicting that average gasoline prices, which recently increased to about $1.50 a gallon, will rise further, to $1.54, by spring not far below the record level set two years ago.
"Additional increases and possible regional price spikes before midyear would be likely if the Venezuelan situation is not resolved this month, or if conflict arises in Iraq and disrupts oil flows there," the agency said.
Marguerite Higgins contributed to this report.

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