Home » Natural gas, oil, diesel, copper prices drop but remain high with supplies tight Week Ending Nov. 28, 2005
Tight supplies of oil and natural gas continue to push up costs for contractors and pose threats of shortages. In its daily update on damage from Hurricanes Katrina and Rita (www.mms.gov), the Minerals Management Service reported this afternoon that more than 30% of the daily natural gas production and 40% of the crude oil production from the Gulf of Mexico was still shut in, nine weeks after Rita struck. The U.S. has no government stockpiles of natural gas and almost no ability to increase imports. Therefore, if the winter is cold, more natural gas will be used for heating homes and businesses, potentially leaving factories and power plants short. Natural gas is used as a feedstock for polyvinyl chloride (PVC) pipe and a variety of other construction plastics, and for making glass and brick. It is also the sole fuel for most power plants built in recent years. The price of natural gas soared to more than $14 per thousand cubic feet (mcf) right after Rita hit. With production slowly climbing and the weather having stayed generally mild, the price for January delivery fell today below $12 per mcf but it is still more than 50% higher than a year ago.
Mild weather has also contributed to a drop in the price of crude oil, gasoline, and diesel fuel. Today the Energy Information Administration (www.eia.doe.gov) reported that the national average retail price of gasoline (all grades and formulations) fell to $2.20 per gallon and on-highway diesel fuel to $2.48 per gallon. Those prices are respectively 87 and 68 cents less than the record set after the hurricanes but are still 21 and 36 cents higher than a year ago. Gasoline prices have dropped more, both because demand normally falls after Labor Day and because consumers appear to have altered their driving habits and vehicle choices. In contrast, demand for diesel fuel is less price-sensitive. Users such as contractors have little ability to reduce their use of diesel fuel to power offroad equipment such as tower cranes and earthmovers, construction vehicles such as dump trucks and concrete mixers, or their demand for trucks that deliver materials and machinery to job sites. Moreover, diesel fuel is made from the same “fraction” of a barrel of crude oil as heating oil. Thus, if cold weather pushes up demand for heating oil, there is less diesel fuel available for construction, transportation, and other users.