Many customers contact us and ask “Hey, what’s up with heating oil prices? What’s behind these price changes?”
The price of heating oil is affected by both global and local forces - forecasts for the global economy can affect the local price of heating oil as much as a really cold New England winter. If you’d like to dig a little deeper into what those forces are, read on!
It’s a crude, crude world
The fact of the matter is, the price of crude oil accounts for the majority (58%) of the cost of heating oil and therefore has a large impact on the price. Just check out the graph below. Kind of says it all. Because crude oil is a commodity (a raw material that can be bought or sold), its own price is driven by the law of supply and demand. That means the global economy and any issues that affect the supply of crude oil will affect how much you pay to heat your home in the winter.
So what drives the price of crude oil?
To understand crude oil pricing, we’ll need to take you back to your high school economics class (we hope bringing you back there doesn’t trigger bad memories). Since crude oil is a commodity, its price is essentially driven by supply and demand. More demand than supply and the price goes up. More supply than demand and the price goes down.
What makes crude oil prices (and heating oil prices) go up?
What makes crude oil prices (and heating oil prices) go down?
- A strengthening global economy – which increases the demand for oil
- A decrease in crude oil production (either voluntary, due to sanctions, conflicts, or natural disasters) which decreases supply
- A slowdown in the global economy – which decreases the demand for oil
- An increase in global crude oil production which increases supply
Besides crude, what else can affect heating oil prices?
OK, if 58% of the price of heating oil is driven by crude what drives the other 42%? That’s where local forces come into play. Some of these local forces include the number of heating oil providers in a market, labor costs, transportation and storage costs, and the weather.
How does severe winter weather affect heating oil prices?
Local weather also affects the price of heating oil. Weather can affect both supply and demand.
Think about it: what do you do when a winter storm rages outside your home? Like most people, you probably turn up the heat a notch. When you do that, you’ve increased demand. The more oil you use causes demand to increase and as a result, you’ve reduced the supply. In short, when there is high demand and lower supply, prices increase.
In addition, wintery conditions can also affect oil production and distribution (supply) by interfering with refineries and the transportation of heating oil from refineries to local wholesalers.
Looking for more? Check out the full story of How Severe Weather Affects Heating Oil Prices.
When should I order more heating oil?
Also, it’s always a good idea to place an order well before your tank is empty, ideally before it gets below a quarter of a tank. It’s like bread and milk at the grocery store— people wait until the last minute and then as soon as a storm rolls in they run to the store and buy bread like it’s going out of style. Same thing happens with heating oil – when it’s about to get really cold, everyone orders, and with a first come first served system, you’ll want to make sure your order is already in the queue before the mad rush. Just remember - “order at a quarter”.
Want more? Read the full story of When to Order More Heating Oil.
Learn more about Heating Oil
Visit our Ultimate Consumer’s Guide to Heating Oil for everything you need to know about heating your home with #2 heating oil.
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