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 The Cost Of Heating Oil - Six Things to Know 

 What consumers must know about the heating oil marketplace.

 

  A better understanding of the heating oil industry will allow consumers to make adjustments in their current heating programs to accommodate fluctuations in market pricing throughout the heating season.

 1. What exactly is heating oil?

 Heating oil is a petroleum distillate product manufactured as a byproduct of crude oil. Refineries produce heating oil as a part of the distillate fuel oil family of products; including heating oils and diesel fuel.

 

 

2. Where does heating oil come from?

 The two sources of heating oil used by the United States are from domestic refineries and imports from foreign countries such as Canada, the Virgin Islands, and Venezuela.

Refiners and other suppliers bring heating oil to oil storage terminals. Heating oil may be delivered to a central distribution area where it is then redistributed throughout the United States by pipelines, barges, tankers, trucks and rail cars. Once heating oil has reached the general area where it will be consumed, it is redistributed by truck to smaller storage tanks near the retail dealers customers, or directly to residential customers.

 3. Who uses heating oil?

 Like any other market commodity, prices for home heating oil are subject to the effects of supply and demand. An estimated 8.1 million American households, mostly in the Northeastern states,  rely on heating oil to keep warm in winter. Although there are limited industrial and commercial uses for heating oil, the primary use is in  residential space heating, making the demand highly seasonal. Most of the heating oil use occurs during October through March.

 4. How much does a gallon of heating oil cost?

 Heating oil prices are determined by three contributing factors: the cost of crude oil, the cost of refining, the cost to market and distribute the product. This determines the cost to the local dealer who then tacks a marginal profit onto it to remain competitive.

 The following table breaks the cost down into components and percentages. Distribution, marketing and processing comprises the relatively fixed liabilities with the cost of crude oil being the largest single variable cost.

 Component of Cost

 Percentage of Cost

 Distribution and Marketing

  46%

 Crude Oil

  42%

 Refinery Processing

  12%

  ----------

 Total Cost per Gallon

  100%

 5. What causes the continuous fluctuations in the market price of heating oil?

 The price of crude oil coupled with available supply and consumer demand is the largest factor effecting the cost of heating oil.

 The conversion of crude oil into gasoline, diesel or heating oil is not a 1:1 transition. Simply put, one barrel of oil does not make one barrel of gasoline, one barrel of diesel or one barrel of anything. Each product is a byproduct in a refining process that is not 100% efficient in producing a singular product.

As a result, when the marketable demand for gasoline or diesel is down, fuel oil production is subsequently reduced too. If this reduction occurs at a time of low inventories and high demand, the price for heating oil rises. Learn more about this at Heating Oil Things You Should Know

 6. What can consumers do to position themselves to get the most out of their dollar when purchasing heating oil?

 Heating Oil Prices Follow Crude Oil.  This figure shows monthly prices from January 1987 to  the present at cents per gallon. Fill your heating oil tank in late summer or early fall when prices are generally lower.

  • Ask your heating oil dealer about budget plans to help stabilize your monthly bill.
     
  •  Ask your heating oil dealer about capped or fixed price protection programs
     
  •  Ask around the community about buying groups that purchase discount heating oil. Federal and State energy assistance programs are available to heating oil customers who have a limited budget.

 Arm yourself with as much knowledge on the local heating oil industry as you can. Do your research and save yourself some money.

More information on maximizing your heating program is available at the Heating Oil Things You Should Know page. STAY WARM!

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Regional operating costs:

Prices in remote locations are also impacted by higher transportation costs. Operating costs of dealers can
vary substantially with location as well. State and local fees and regulations vary widely from one locale to
another.

Surges: Drastic upshift in prices over a very short period of time caused largely by unplanned events. Some
of the conditions that initiate a surge in prices are listed below.

Refineries cannot meet unexpected demands:

Refineries do not just produce heating oil. It is but one of the byproducts of their manufacturing process.
It is not economically feasible for them to produce excessive amounts of surplus gasoline, diesel, and
other distillate products to produce heating oil for a short-term demand.

Unexpected rapid drop in temperatures:

A rapid drop in the temperature in a region can have a severe effect on supply and demand. Customers
are using more fuel oil unexpectedly and inventories are being depleted faster than they can be
replenished. Rivers and harbors may be frozen or other disruptions to the supply chain may occur.

Competition in local markets:

Areas with a limited number of suppliers may also net higher prices. This is typically true in rural or
remote areas where the competitive advantage of choosing between numerous providers is denied.

Changes in the cost of crude oil:

As the principal cost component of all fossil fuels (at 42 percent of total cost), changes in the price of
heating oil fuel are closely linked to the price refineries pay for crude oil. Price increases are complex
and intermingled with one another. Global supply and demand as well as the state of the global
economy and even the weather determine crude oil prices. The Organization of Petroleum Exporting
Countries (OPEC) and other factors also influence supply and prices as well.

STAY WARM!

 

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