Written on: January 25, 2023
Long-time heating oil consumers know all too well that the price they pay for heating oil can change quite a bit from year to year. Recently, heating oil prices — along with all energy prices — have been surging. While Lawman’s Oil cannot control what happens with world oil prices, we can give you some understanding of why heating oil prices rise and fall on a steady basis.
First, the price of crude oil is usually the most important factor in the pricing of heating oil. Like gasoline and jet fuel, heating oil is one of the many products refined from crude oil. Crude oil is a globally traded commodity which means that it is subject to many forces that drive its value up or down.
Even before Russia invaded Ukraine in February 2022, energy prices were increasing in anticipation of sanctions on the Russian energy sector. Russia is the world’s third-largest petroleum and liquid fuels producer. It is also the second-largest producer of natural gas.
Even the possibility of a big disruption in the vital energy supply chain heavily influences the buying and selling done by commodities traders. A Wall Street burst of trading activity caused energy prices to rise based on speculation in the stock market about what could happen in the coming weeks and months if sanctions were imposed on Russia. This is often referred to as the fear factor.
After Russia eventually invaded, the U.S. and other countries placed bans on Russian imported oil and other energy products. It left a big void to fill. And as you probably already know, energy prices soared even higher as a result.
Before the uncertainty created by the Ukraine war, oil prices had fluctuated because of COVID-19. In spring 2020, crude oil prices plummeted when economies locked down across the globe. Production virtually ground to a halt.
Another supply-demand issue has centered on diminished refinery production, especially as demand increased as COVID-19 cases started to decrease. Over the last several years, 5% of U.S. refinery capacity, along with 6% percent of European refinery capacity, has been shut down. A few refineries closed or scaled back because of the collapse in energy demand in the early months of the COVID-19 pandemic.
Some older refineries were shut down because they were inefficient, and their profits weren’t large enough for Wall Street investors. Other refineries were closed so that their owners could convert them to produce biofuels.*
U.S. heating-oil prices are typically driven by the use of oil in homes in the Northeast, which consume about 90% of the heating oil used domestically. In a brutally cold winter, prices often rise. Also, on a local level, operational costs (including overtime) and even competition between heating oil dealers can result in price variation.
A common question lately has been, “why haven’t heating oil prices been falling like gasoline prices?”
While gasoline and heating oil are both distillates of crude oil, their prices don’t always track the same way. The better comparison is diesel fuel. Diesel and heating oil are virtually the same product. They are just taxed differently.
Diesel prices have surged because fuel is scarce worldwide, unlike gasoline. As noted before, there are simply not enough refineries right now to meet post-pandemic global demand, especially since the U.S. and European countries have stopped buying Russia’s energy exports.
The good news is that Lawman’s Oil maintains a winter-ready inventory of heating oil at secure fuel storage facilities. We also have solid relationships with reliable fuel suppliers. This puts us in a much stronger position than the small-time operators who have to scramble to get their heating oil every day.
If you’re a homeowner in New Jersey, Delaware, or Pennsylvania who wants fast, affordable, and hassle-free low-cost, high-quality heating oil, we encourage you to order from Lawman’s Oil.
We offer COD fuel, the lowest possible prices, prompt deliveries, premium high-quality B20 Bioheat Plus® fuel, and tamper-proof meters and delivery tickets that guarantee you always get what you pay for.
*Source: NY Times, 11-10-22