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Understanding factors that drive the volatility in residential heating oil prices.
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.
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