If your home heating system and water heater utilizes oil for fuel, knowing the factors that influence its cost can be helpful when working on your winter budget. In today’s post, Thomas J. Fannon & Sons shares insight on the factors that affect the cost of heating oil.
Global market. Heating oil is a form of petroleum that’s derived from crude oil, which is traded on a global market and is therefore subject to a complex set of pricing factors. The United States has two main sources of crude oil — domestic refineries and imports from other countries, the latter of which comprises two-thirds of the supply and is affected by changes in global market pricing.
Changing weather. The Northeast region consumes about 90% of heating oil. Demand for heating oil increases as the weather shifts toward the winter season — prices may drop if the season is warmer than average or rise if it turns out to be colder than normal. Heating oil can be stored for later use; however, not all types of heating oil are the same. Some may require additives to prevent deterioration during storage.
Competition. The number of fuel oil suppliers in your area can affect its price — the more suppliers there are, the lower they’ll price their heating oil. If you live in an area that has few competing suppliers, then you’re bound to see higher prices.
Government policy changes. Heating oil prices are also affected by energy policies that are put into place. For example, if a new policy causes a decline in the production of heating oil, then the prices may rise due to the smaller supply. People affected by these changes may also end up buying earlier, which can create additional disparities between supply and demand and cause prices to rise.
Regional cost. Logistics is a key factor that can affect heating oil prices. The further you are from a wholesale supplier, the higher the delivery costs will be for your local one, which will be factored into the price that consumers end up paying for the oil.