Heating Oil Prices Explained
As you can see heating oil prices are fluctuating. But why is that? And is there a way to predict its price?
Why are heating oil prices fluctuating?
Heating oil prices are decreasing in the market recently since January 2022 yet it’s still maintained their value and stand in the market. Here are the contributing factors to its price fluctuation:
1. Supply and Demand Variation
The sharp increase in heating oil demand will likely cause supply depletion and refineries can’t keep up with the growing need, prompting production and prices to soar high.
2. Crude Oil Prices
As heating oil is a byproduct of crude oil, its supply availability depends on crude oil production which then transcends to its market price.
3. Weather Conditions
Similar to propane, heating oil is also a fuel source for heating homes and buildings.
Its demand goes high, particularly in winter when the supply chain is also low because oil production is slow due to the freezing temperature. Thus, a low supply and high demand are the perfect combination for a price spike.
4. Distribution and Delivery Cost
Most countries rely heavily on crude oil import and transportation of these products consumes lots of labor and resources.
Therefore, companies and logistics put an increased market value to keep their services and livelihood running.
The Organization of Petroleum Exporting Countries ( OPEC ) is a group of countries and companies that regulate crude oil supply globally.
Therefore, this organization has the power to influence the heating oil supply and prices in the market.
6. Political Tensions in Oil-Producing Countries
War and social unrest greatly impact oil price fluctuation as it decreases oil production and transportation capacity not to mention closed borders and sanctions.
Which variables impact the price of heating oil?
- Supply and Demand Variation
- Crude Oil Prices
- Weather Conditions
- Distribution and Delivery Cost
- Political in Oil-Producing Countries
- Exchange Rates
- Government Policies
Where does heating oil come from?
Generally, heating oil is a type of fuel oil from crude oil. It undergoes a series of processes where its end-products are gasoline, diesel fuel, jet fuel, and heating oil.
Fractional distillation is the process of producing heating oil where crude oil is heated to separate it into different components according to boiling points.
The first recorded use of heating oil was in the 1840s in the U.S.
Additionally, to further streamline its usage, M.A. Fessler modified Benjamin Franklin’s stove into an oil burner which provides heat in residential homes and buildings during winter months nowadays.
Furthermore, recycled vegetable oils and animal fats are also good sources of heating oil, which is called biodiesel.
Processing of Heating Oil
Generally, heating oil is used to heat homes and businesses.
Its processing begins with the distillation of crude oil. Distillation is a process of heating crude oil to a high temperature, which causes the different hydrocarbons in the oil to vaporize at different rates.
The lighter hydrocarbons such as gasoline and jet fuel vaporize first, while the heavier hydrocarbons such as heating oil and diesel fuel, vaporize later.
Then, the vapors from the distillation process are condensed into liquid form. The different fractions of crude oil are collected separately and further processed to produce the desired products. Additionally, it is processed to remove impurities and improve its quality.
Today, heating oil comes from these top-producing countries such as the United States, Russia, Saudi Arabia, Canada, and China.
What is the future price of heating oil?
Generally, late fall and winter months are heating oil seasons. It is when demand and price are at their peak due to colder temperatures. Its season usually begins in the midweek or late September and until April. This depends on the country’s location and climate.
In 2020 winter, the residential consumers of the Northeast region in the US used about 2.6 billion gallons of heating oil, an equivalent of 85% of total U.S. residential heating oil sales according to U.S. Energy Administration Information.
Conversely, heating oil demand and prices subside during the spring and summer months. An ideal buying strategy for homeowners.
Overall, heating oil prices thread on its limited supply, rising demand, and top industry applications. Thus, its price will remain elevated at $5.50 per gallon in 2030.