The price of home heating oil in Rhode Island set a new high yesterday, yet another indication that heating costs this coming winter will be painfully expensive.

The average price was $4.749 a gallon, the highest price ever recorded by the state Office of Energy Resources. The agency surveys local dealers each week to determine an average price in the state.

That average is up 3 cents from last week and up $2.10 a gallon, or 79 percent, from one year ago.

While demand for heating oil is at its lowest point of the year during the summer, now is the time that many oil customers shop around to lock in a price for the winter.

Of the 8 million households in the United States that use oil to heat their homes, 6.2 million, about 78 percent, are in New England and the Central Atlantic states, according to the U.S. Department of Energy. In Rhode Island, about 42 percent of all households, or about 172,000, heat with oil, according to the 2000 U.S. Census. About 46 percent use natural gas.

For those who use oil for heat, “it’s going to be a brutal winter,” said Stephen Schork, a Pennsylvania energy consultant who writes a newsletter for the oil and gas industry.

The average price of gasoline yesterday was $4.109 a gallon, unchanged from last week, according to the Office of Energy Resources. That’s a penny below the all-time high of $4.119 a gallon, set last month.

Even with record-high gasoline, prices haven’t risen nearly as much as heating oil. Gasoline is about 38 percent more expensive than it was a year ago, while heating oil has jumped 79 percent.

The reason for the difference in price increases, some energy experts said, has to do with supply and demand of gasoline and diesel fuel, which is a close cousin to home heating oil.

Both products are made from crude oil, which has doubled in price over the past year.

Gasoline hasn’t increased as much as crude oil and other petroleum products because demand for gas has been declining.

“For the first time in a long time, we have had a yearly decrease in gasoline consumption,” said Neil Gamson, an economist with the Energy Information Administration, the statistical arm of the Department of Energy. He said the last drop in demand was in 1991, the year of an economic recession and the U.S.-led Gulf War.

U.S. gasoline consumption in the first quarter of this year fell 1.3 percent compared with the first quarter of last year. It declined 1.6 percent in the second quarter, according to energy administration data.

“Considering that the population is still growing, that’s unusual,” Gamson said.

That drop-off in demand has led to an abundance of gasoline inventories, which also tends to dampen price increases.

“We’ve got plenty of it,” said James L. Williams, an energy consultant with WTRG Economics of London, Ark. “We’ve been through the Fourth of July, people see the end of the driving season,” he said.

Retailers and refiners have been making very little money on gasoline sales, he said. They have been absorbing the higher costs of crude oil rather than pass them on to customers, said Trilby Lundberg, editor of a national gasoline survey newsletter, according to Reuters news service.

Had those costs had been passed on, gasoline would be about 23 cents a gallon higher, she said.

Heating oil prices have followed a different trajectory, mainly because it is closely related to diesel fuel, which is in high demand here and abroad.

Both heating oil and diesel fuel are essentially the same, with diesel having a lower sulfur content.

“What is now driving heating oil is not fundamentals regarding weather and usage, but regarding diesel and transportation,” said Schork, the Pennsylvania energy consultant.

While demand for diesel fuel has dropped in the United States, it has not dropped to the same degree as gasoline. And worldwide, demand for diesel is still growing, according to Gamson of the Energy Information Administration.

“Some of it has to do with the industrialization in China, with all the construction, all the projects going on, trucks moving goods –– they use diesel,” Gamson said.

Schork said that in the United States, demand for diesel fuel is more “inelastic” than demand for gasoline. In other words, people can cut back on their driving if they want to by joining a carpool, or staying closer to home during vacations.

But transportation companies and farmers –– big users of diesel fuel –– don’t have that flexibility, he said. Farmers still have to burn diesel in their tractors to plant and harvest crops; trucking companies still have to transport goods from ports to the markets to be sold.

In addition, there is a push in European countries to shift to cars using diesel fuel since it is more efficient and pollutes less.

These factors have led to a worldwide shortage of diesel fuel, which has pushed up prices, said Williams, the energy consultant.

“It’s an international market affecting U.S. price.”

What lies ahead for home heating oil and gasoline prices depends on what happens with the price of crude oil, said Gamson.

He said the energy administration has predicted that crude oil will continue rising through the end of the year. Under that scenario, gasoline prices should start heading higher, he said.

Heating oil, he said, will be very high compared with last year.

He said the agency doesn’t predict that heating oil prices will drop until next year.

Source: R.I. Office of Energy Resources

tbarmann@projo.com