Heating Oil Price Trends
Why do heating oil prices go up and down?
There are a variety of factors that affect heating oil prices:
- Seasonal demand for heating oil – all else equal, heating oil prices rise in colder months as demand for home heating rises. The typical heating oil user in the Northeast consumes 850-1200 gallons of heating oil a year but the majority of that is during the winter.
- Cost of crude oil – crude oil price is the major component of heating oil price, as heating oil is made by refining crude oil. World supply and demand determines the price of crude oil, which means any range of happenings (weather, geopolitical events, oil discoveries) can influence its price. Furthermore, groups like the Organization of the Petroleum Exporting Countries (OPEC) also play a major role in setting prices by coordinating supply.
- Local market competition – the number of heating oil suppliers can vary region to region and affect the price competition in that area. Heating oil and related services’ prices tend to be higher when there are fewer suppliers compared to regions with more competition. This means consumers in harder-to-reach regions, such as rural areas, often end up paying more for heating oil.
- Regional operating costs – the cost of supplying heating oil to homes can affect prices substantially. If your home, neighborhood, or town is hard to reach from traditional oil supply stations, you might end up paying more than consumers who live closer. (Heating oil explained, EIA)
Why do heating oil prices suddenly spike?
Weather phenomena, such as an especially cold winter storm, can cause people to want more fuel for their homes or cause people to use heating oil faster than they intended. This drives heating oil prices up – even more so if the weather causes delivery systems to be delayed.
Unexpected increases in consumption for whatever reason generally lead to heating oil prices spiking. When wholesale buyers worry that they might not have enough supply for their customers’ demand, they bid up the price of heating oil and therefore sell it for much higher prices.
In periods where supply has dipped sharply, heating oil must be shipped in from other parts of the world, like the Middle East or Europe. This delivery can be expensive and take extended periods of time. In this time, uncertainty about short term supply increases which drives middlemen and consumers to bid up prices. ( Heating oil explained, EIA)
Will-Call or Automatic Heating Oil Delivery
You can’t control the price of heating oil itself, but you can control another factor that plays a big role in the price oil – will-call vs automatic heating oil delivery. Automatic delivery is a premium service and is billed at a higher price – usually a 50 cent upcharge but can be up to $1.00. This is because automatic delivery providers monitor your usage algorithmically and ensure you never run out of oil. You cannot “time” the market if you have automatic delivery, instead paying whatever price the heating oil provider charges the day they choose to deliver.
You can take advantage of savings on heating oil by buying the oil yourself on a will-call basis and trying to buy oil when you feel the price is reasonable for your budget and finances. HeatFleet gives you the advantage of having dealers quote the best prices for you so you always get the best market price. (Heatable)
When should I buy heating oil?
It goes without saying that if you want to buy oil when prices tend to be the lowest, it’s in your best interest to order in the off-season. This generally means the summer months.
This isn’t always true – as mentioned before, heating oil prices depend on factors that stretch beyond just seasonal factors. However, more times than not, ordering in the off season will save you money throughout the winter. Seasonal demand for heating oil peaks from late September through April, so ordering outside of that window is optimal.