Cold weather forecasts for the next few days and low inventories have pushed up the prices of heating oil and natural gas for November delivery in the USA.

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OGJ editors, Wednesday October 31st 2002, “Market watch: Cold weather pushes up heating oil, natural gas prices”

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Cold weather forecasts for the next few days and low inventories have pushed up the prices of heating oil and natural gas for November delivery in the USA. Heating oil prices have jumped by 1.22c to 72.77c/gal on the New York Mercantile Exchange. “US heating oil inventories are now lower than they were at the start of August,” said Paul Horsnell, head of energy research for JP Morgan Chase & Co., London.

The November contract for unleaded gasoline has risen by 0.56c to 82.83c/gal. “Crude inventories have remained stubbornly low after storms should have increased them by so dramatically reducing refinery runs. Hence, we suspect that the 5-month old downwards trend (in US petroleum inventories) must still be very much intact,” Horsnell reported.

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It is worth noting at this point that oil and natural gas are substitutes for each other in a number of major applications. For energy generation, for example, oil and gas are fairly readily substitutable whereas for running cars, it is not economic to substitute gas for oil. Because the major users are industry and energy generation, however, where substitutability is fairly high, the price linkage remains strong.

Cold weather will increase the demand for heating oil and natural gas, as people usually have their home temperature controlled on a thermostat in which case consumption of oil/natural gas ...

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