Why the Price of Heating Oil Fluctuates

The main heating fuel used in approximately 8 million U.S. households is heating oil. The primary use for heating oil is for residential space. The demand is highly seasonal with the Northeast as the biggest user using most of the heating oil during the months of October through March. In order to beat rising winter prices, some customers fill their storage tanks in the summer or early fall when the prices are likely to be lower. Most homeowners do not have large enough storage tanks to store the full amount needed for the entire winter. They may have to refill their tanks as often as 4 or 5 times during the heating season, and possible rising or spiking prices are a concern.

The United States has two sources of heating oil: domestic refineries and imports from foreign countries. Refineries produce heating oil as a part of the “distillate fuel oil” product family, which includes heating oils and diesel fuel. Pipelines, barges, tankers, trucks and rail cars ship the heating oil throughout the United States. Most imports of distillate come from Canada, the Virgin Islands, and Venezuela. If consumer demand is high for gasoline during its peak season, refiners may delay producing heating oil for the winter, which may lower inventories at the start of the heating season. The supply and demand principal comes into play.

Heating oil is brought into oil storage terminals by the refiners and other suppliers. Heating oil may be delivered to a central distribution area, such as New York Harbor, where it is then redistributed by barge to other consuming areas, such as New England. Once heating oil is in the designated area, it is redistributed by truck to smaller storage tanks closer to a retail dealer’s customers, or even directly to residential customers depending on the consumer area.

The cost of crude oil, the cost to produce the product, the cost to market and distribute the product, as well as the profits (sometimes losses) of refiners, wholesalers and dealers all play an intregral part in determining heating oil prices paid by the end consumers. Prices can vary over time and by where a consumer lives. Prices can change for a variety of reasons. These include seasonality in the demand for heating oil,
changes in the cost of crude oil, and
regional operating costs. Prices also are impacted by higher costs of transporting the product to remote locations.

When crude oil prices are stable, home heating oil prices tend to gradually rise in the winter months when the demand is highest.
Since crude oil is a major price component of heating oil, changes in the price of crude oil will generally affect the price of heating oil. Crude oil prices are determined by worldwide supply and demand. The supply is influenced by the Organization of Petroleum Exporting Countries (OPEC) and other factors. The demand can vary worldwide with the economy and with weather. The cost of doing business by dealers can vary substantially depending on the area of the country in which the dealer is located. These are the main variables to make the prices of home heating oil fluctuate constantly.

Oil companies like Triple Diamond Energy Corporation do their part in supplying the homeowner with the heating oil they need to keep everybody warm and comfortable throughout the winter.