How Do Heating Oil Companies Decide What Customers Pay Per Gallon?
Posted on November 17 2023
What determines the price of home heating oil? There isn’t a simple answer, but there are several factors including the crude oil that heating oil comes from, the cost of turning (refining) crude into heating oil, storage, taxes, and delivery. We’ll do our best to break down the costs associated with each gallon of heating oil. Lets dive in!
The Biggest Piece of The Pie, Crude.
For simplicity, crude is the main ingredient needed for home heating oil, and makes up somewhere between 53% and 58% of the total cost per gallon. Crude oil is extracted from the ground and sold by the barrel to a refinery – more on this later. In the United States, the crude oil we consume comes from inside the US, and it also comes from Canada (our largest source of crude outside the US), Mexico, Saudi Arabia, and Iraq link. Crude is sold by the barrel (42 gallons in a barrel), and as of November 15th, 2023 costs $77.78 per barrel, or $1.85 per gallon. Given crude is the primary component of heating oil, it is also the primary driver of price. Want to learn more about crude oil and how it affects Heating Oil prices? Check out the How is Home Heating Oil Made section of our Ultimate Consumer's Guide to Heating Oil, it covers everything else you need to know - and we mean everything.
Lets Make Home Heating Oil!
Most of us have heard of refineries. Refineries buy barrels of crude oil and turn the crude into various products such as diesel, gasoline, kerosine, or in our case home heating oil. Refining accounts for approximately 24% of the total cost of a gallon of heating oil.
Storage and Transportation
After the refining process, the product (home heating oil) needs storage and transportation to our wicked awesome customers. We call this wholesale. Wholesalers are who we (Heatable) get our product from. On average, the cost of transportation and storage accounts for 3% of the cost of a gallon of heating oil.
Taxes
Unlike gasoline or diesel which contains taxes to pay for road usage, home heating oil taxes account for roughly 4% of the total cost per gallon. We can’t avoid these.
Here’s Where We Come In... And You!
Ahhh the final link in the chain, we just picked up your oil from a local wholesaler and are on our way to make your delivery! If you’re still following, you get the point… Heatable is left with a small amount of the pie, roughly 16% of the total cost per gallon. Rolled into our slice of pie are the pay checks for our wicked awesome drivers, office ninjas, and cutting-edge technology – trust us, this isn’t cheap! We also can’t forget about vehicle maintenance, delivery costs – diesel to deliver the product, and other miscellaneous operating expenses that we are probably forgetting.
Our margins are slim, we aren’t stuffing our pillowcases with $100 bills (contrary to popular belief).
While predicting oil prices remains elusive, at Heatable we always want to provide transparency around our pricing, because lets face it it’s complicated, and we want YOU to understand the factors that influence pricing – we can’t predict the price per gallon and neither can the experts – so how How can I Predict Heating Oil Prices?
If we lost you along the way, here is an illustration of what we wrote above.
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Stay cozy out there!
The Heatable Crew