How Are Heating Oil Prices Determined?

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There are many factors that determine what you will pay for home heating oil. Some of these factors are the price of crude oil, the cost associated with refining the oil, the cost of distribution and marketing of it, plus the cost of doing business and profit for the dealers and supplier. Approximately 68% of the cost of heating oil is related to the price of crude oil. Distribution and marketing is about 25% of the cost with around 8% for refining costs and profits.

Supply and demand is also a big factor in heating oil prices. If there are supply disruptions or a sudden drop in temperature, then the price of heating oil can shoot higher. You can follow oil prices by watching the heating oil futures market. There, prices are changing every second and will give you an indication of the direction of prices.

How do we produce heating oil?

Let’s start at the very beginning. Home heating oil is refined from crude oil. At the refineries, crude oil is “cracked” or separated into different refined products. These products are gasoline, jet fuel, kerosene, heating oil diesel and other oils. Heating oil, which is also known as No. 2 fuel oil is the second largest “cut” of a barrel of crude right after gasoline. Diesel fuel and heating oil are very closely related often referred to as distillates. The difference between the two is that diesel fuel will contain less sulfur. Because there is more sulfur in diesel, that fuel will be priced higher than heating oil.

Where do we get our heating oil?

We get our oil from two sources, domestic refineries and the balance of our supplies from foreign countries. Heating oil can be shipped throughout the United States by pipelines, tankers, barges trucks and also rail cars.

Heating oil is then brought to large storage terminals. An example would be the New York Harbor Oil market. From this location, oil can then be transported to other areas along the northeast coast by way of barges and pipelines. From there, it is transported to small storage tanks and then finally onto the consumer by trucks.

Who Are Heating Oil Users?

There are approximately over 115 million households in the United States. Of that amount, just over 8 million use heating oil to heat their homes. This makes heating oil demand very seasonal. The Energy Information Agency considers the heating season to run from October to March each year. The Northeast part of the United States is the largest user of heating oil. Approximately 80% of the heating oil users are located there. Heating oil and also propane gas are frequently used when there are no local natural gas pipelines nearby.

How can you reduce your heating oil bill?

There are generally 3 ways to save money on heating oil prices. One is to shop around for the lowest prices. If you do not have a contract with a heating oil dealer, you are free to purchase you oil from whomever you decide. This does give you some leverage when shopping and comparing heating oil prices. You can also typically save money by purchasing your heating oil in the summer or early fall. Prices are generally lower then, demand is lower so are prices usually.

You can also talk to your dealer to see if they offer a pre-buy program or a fixed price protection options. These are ways to help prevent you from having to pay a lot of money for heating oil if there is a price spike.

Tune up your furnace and also make your house energy efficient

Much of your heating dollars are wasted on either an inefficient furnace through leaks that lets cold air in. You should get a home energy audit to see where those leaks are coming from and to stop them before the heating season. The auditor will give you tips on how to weatherize your home. Many of those projects you can do yourself and will cost very little money.

Installing a programmable thermostat and setting back the heat will results in significant savings. You can set the thermostat to lower the heat when your home is empty, and to automatically raise the heat before you come home.

If you are having problem paying for heat this winter, many states, counties and towns offer heating assistance programs. One such program is the Federal Low Income Home Energy Assistance Program also known as LIHEAP

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