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What Affects The Price Of Heating Oil

Updated on October 24, 2017

If you use fuel oil to hear your home, then you don't need us to tell you that heating oil prices are always changing. Many people wonder why prices are constantly changing, but the truth is there is no single answer. This is because many things can affect the cost of heating oil. With that said, if you want to find out what some of these factors are, then continue to read on.

Oil port
Oil port | Source

Crud Oil Prices

The main factor that impacts the price of oil is the cost of crude oil. This is according to data from the EIA, short for US Energy Information Administration. For example, from winter of 2006 to winter 2016 crude oil accounted for nearly 55% of the average price per gallon of oil. Since this is the case, heating oil prices will be affected by the changes in crude oil prices. In short, if crude oil prices are high, then prices will also be high for heating oil, and vice versa. With this in mind, crude oil prices are affected by supply and demand, as well as political events that are happening in certain countries, in particularly the countries that produce crude oil.

The Weather

Cold weather usually drives up the price of heating oil. A good example of this is that during the 2013-2014 winter season, heating oil prices rose by over seven cents per gallon. That period of time was one of the coldest winters ever. Also, tropical storms and hurricanes can lead to heating oil prices skyrocketing. When a storm makes landfall, lower temperatures tend to come along with it. This usually means there is a much higher demand for heating oil, hence the increase in prices.

Heating oil suppliers also have a tougher time delivering heating oil to customers. Suppliers can even run out of oil inventories due to the sudden increase in demand during storms. This can lead to prices increasing in all areas of the country. In fact, the EIA said that in Northeast US, heating oil suppliers have to purchase oil from the Gulf Coast or Europe if the region were to experience a shortage of heating oil. Since there are logistical challenges present, this would lead to heating oil costing more.

Government Policies

Oil can greatly increase or decrease in price based on how oil refiners react to changes in policies. This includes the government introducing stricter safety requirements. For example, if refiners believe the demand for fuel oil will go down due to changes, then they will likely raise the price. This is because refineries will scale down production. However, if the changes are made when the months are warm, then the price of oil will likely fall because refineries will still have massive inventories.

Pricing Factors

Let's not forget to point out that heating oil pricing factors can vary from one region to another region. For example, if there are many suppliers in one neighborhood, then you can expect to pay less. Those who live in an area where there are few suppliers will likely pay more. Not only that, but if you live close by to a fuel staging area and a supply area, then you'll pay less. Generally speaking, heating oil prices tend to fluctuate across the United States, due to pricing factors.

Alternative Options

There are alternative heating options, which have also played a role in heating oil prices fluctuating. This includes electricity, fireplaces, kerosene and natural gas to name a few. Each alternative heating option does have limitations, especially when it comes to safety, efficiency and affordability.

Conclusion

There are so many different factors that cause heating oil prices to fluctuate. This includes pricing factors, government policies, alternative heating options, crude oil prices and even the weather.

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