Factors Affecting Heating Oil Prices

Why Do Heating Oil Prices Fluctuate?

Heating oil prices paid by consumers can vary over time and by where a consumer lives. Prices can change for a variety of reasons.

1. Seasonality in the Demand for Heating Oil

When crude oil prices are stable, home heating oil prices tend to gradually rise in the winter months when demand is highest. However, at times, prices can surge quickly to very high levels. A homeowner in the Northeast might use 850-1,200 gallons of heating oil during a typical winter, while consuming very little during the rest of the year.

2. Competition in Local Markets

Competitive differences can be substantial between a locality with only one or a few suppliers or dealers versus an area with a large number of competitors. Consumers in remote or rural locations may face higher prices because there are fewer competitors.

3. Regional Operating Costs

Prices also are impacted by higher costs of transporting the product to remote locations. In addition, the cost of doing business by dealers can vary substantially depending on the area of the country where the dealer is located. Costs of doing business include wages and salaries, benefits, equipment, lease/rent, insurance, overhead, and State and local fees.

4. What Causes a Surge in Heating Oil Prices?

Home heating oil prices sometimes can change dramatically in a short period of time. Why does this happen? If refiners, wholesalers, dealers and consumers have enough heating oil in storage and temperatures do not drop rapidly, prices hold fairly steady (assuming crude oil prices are also not changing much). However, a rapid change to colder weather can impact both supply and demand; people want more fuel at the same time that harbors and rivers are frozen or delivery systems are interrupted.

What Causes a Surge in Heating Oil Prices?

Home heating oil prices sometimes can change dramatically in a short period of time. Why does this happen? If refiners, wholesalers, dealers and consumers have enough heating oil in storage and temperatures do not drop rapidly, prices hold fairly steady (assuming crude oil prices are also not changing much). However, a rapid change to colder weather can impact both supply and demand; people want more fuel at the same time that harbors and rivers are frozen or delivery systems are interrupted.

During this time, the available heating oil in storage is used much faster than it can be replenished. Refineries normally cannot keep up with demand during these cold periods. Wholesale buyers become concerned that supplies are not adequate to cover short-term customer demand and bid up prices for available product.

In the Northeast, for example, additional supplies may have to come from some distance away, such as the Gulf Coast or Europe. Transporting heating oil from these sources to the Northeast is more costly, and delivery can take two to three weeks. During the time that resupply from distant markets is occurring, the supply of heating oil that sellers in the region have in storage drops further, buyers’ anxiety about finding heating oil in the short term rises, and so do prices — sometimes sharply — until new supply arrives.

In addition, during very cold periods, prices of other heating fuels (such as natural gas or kerosene) may increase even more than heating oil prices. In this case, some consumers may switch from using their normal heating fuel to using heating oil, further increasing the demand for heating oil.

Post to Twitter Tweet This Post

About chiefenergy

Founded in 1977, Chief Energy Corp. (an Energy Service Company - ESCO) and a Heating Oil Delivery company provides a comprehensive line-up of energy services. Our team works hard to assure our pricing is one of the most competitive in the industry.
This entry was posted in Fixed Price Energy Services. Bookmark the permalink.

5 Responses to Factors Affecting Heating Oil Prices

  1. Priya says:

    I couldn’t have really asked for a much better blog. You happen to be always available to give excellent suggestions, going directly to the point for simple understanding of your website visitors. You’re surely a terrific pro in this subject matter. Many thanks for currently being there for folks like me.

  2. Craig says:

    Great blog! This does a great job explaining to people with little to no understanding of home heating oil an opportunity to learn the basics of the rise and fall of oil prices.

  3. napsVabsEnaxy says:

    Hello! Just want to say thank you for this interesting article! =) Peace, Joy.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>