What Causes a Surge in Heating Oil Prices?

High on the list of variables that affect the pricing of home heating oil is the supply-and-demand factor. For many reasons home heating oil prices can change dramatically in just a short period of time. Assuming crude oil prices are staying pretty much stable, if refiners, wholesalers, dealers and consumers have enough heating oil in storage and temperatures do not drop rapidly, prices can hold fairly steady throughout the winter.
A rapid change to colder weather can impact both supply and demand. People want more fuel when the harbors and rivers may be frozen and delivery systems are interrupted. The available heating oil in storage is used much faster than it can be replenished during this time. During these cold periods, the refineries normally cannot keep up with demand. Concerned that supplies are not adequate, the wholesaler buyers will bid up prices to cover short-term customer demand for heating oil at this time. In the Northeast in particular, additional supplies may have to come from some distance away, such as the Gulf Coast or Europe costing more to transport. It also can take up to two weeks to arrive. While waiting, 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 until new supply arrives.
Refiners can increase heating oil production in the winter to a modest degree. There comes a point when more of other petroleum products which could not be sold in sufficient quantities during the winter months, have to be produced. If consumer demand is high for a seasonal product, such as gasoline, refiners may delay producing heating oil for the winter, which may lower inventories at the start of the heating season.

Prices of other heating fuels (such as natural gas or kerosene) may increase too, even more than heating oil prices during very cold periods. Because of this, some consumers may switch from using their normal heating fuel to using heating oil, which only increases the demand for heating oil.

Roughly 78 percent of all the households which heat their homes with oil are located in the Northeast region of the United States. The Northeast region (which includes the New England and Central Atlantic States) remains the area with an appreciable share of oil-heated single family homes. In 2005, over 5 billion gallons of heating oil were sold to residential consumers in the Northeast. In other regions, the older homes have been converted to gas heat from oil. So oil heat no longer has a noticeable share of the new home construction market. The seasonal increase in inventories and demand (sales of heating oil) is largely confined to the Northeast.

Triple Diamond Energy Corporation, along with other oil manufacturers, keep watch over their supply of heating oil and make sure there is adequate production for the demand the winter months bring.