Thanks to big increases in domestic supply, coupled with a reduction in global demand and a strong U.S. dollar, oil prices are well below the levels of a few years ago—and are expected to stay stable for the foreseeable future. The U.S. Energy Information Administration has described this as a “new normal” in heating oil prices.
But as you have no doubt learned, the price you pay for heating oil can still change quite a bit from year to year. Why does that happen? Simple: because the market price of oil is the product of factors that are always changing. This makes it next to impossible to predict which way prices may go.
To give you a sense of how complicated the heating oil pricing equation can be, here’s a short summary of a few of the major factors that contribute to it.
The price of crude oil is the most important component in heating oil pricing. Heating oil, gasoline, diesel and jet fuel are among the many products refined from crude oil. The problem here is that crude oil is a globally traded commodity, which means it is subject to many forces that drive its value up or down.
These forces can include destructive hurricanes that temporarily shut down major refineries. International crises can also have an effect on crude oil production. Although events like these may not actually lead to fuel shortages, prices around the country—including the prices of gasoline, diesel fuel and heating oil—can all rise based on speculation in the stock market about what could happen in the weeks and months following such an event. This is often referred to as the fear factor.
U.S. heating oil prices are typically driven by the demand generated by residents in the Northeast, whose homes consume about 90 percent of the heating oil used domestically. In a brutally cold or volatile winter, prices often rise. Also, on a local level, operational costs (including overtime) and even competition between dealers can result in price variation.
To take away any worries about the normal ebb and flow of oil prices, contact your Massachusetts heating oil dealer. Many companies offer programs designed to save you money and keep your heating bills manageable—no matter what happens with world oil prices.
Contact your oilheat company to see all they can do for you.