Heating Oil Pricing 101: Part 1 of 2

Posted: April 9, 2018

Unpredictable graph

Two questions we get asked every year are “How much will I pay for my heating oil this year,” and “what’s the best way to pay for it?”

Although we hate to admit it, the honest answer to the first question is “we just don’t know” – and the answer to the second question is “it depends.”

Don’t worry – we’ll explain what we mean in this two-part blog post.

Why heating oil prices are impossible to predict

The price you pay for heating oil can change quite a bit from year to year (as you may have noticed). Why does that happen? Simple: because many forces influence the market price for heating oil, and interaction of those forces make price prediction is next to impossible.

To give you some sense of how complicated heating oil pricing is, here’s a short summary of the major factors that contribute to it:

  1. Crude oil pricing – The price of crude oil can account for anywhere from 50 to 70 percent of the cost of heating oil, making it the most important heating oil pricing factor (marketing, refining, and profits contribute to the remaining costs). Crude oil is a globally traded commodity, which means it is subject to many forces that drive its value up or down – from supply to current and future demand, political events and crises, and more.
  2. Weather – U.S. heating oil prices are typically driven by homes in the Northeast, which consume about nine of every ten gallons of heating oil used domestically. In a relatively warm winter, heating oil prices are typically less volatile; the colder or more changeable the weather, the more heating oil prices rise (as we saw this winter). Sudden and extreme weather can also have a big impact on heating oil prices, especially if it is strong enough to constrain supply locally or regionally.
  3. Location – If you live in an area with many heating oil companies (as we do here in New England), they’re more likely to compete for your business. If you don’t, you will probably pay more. Proximity to shipping ports will also affect pricing.
  4. Policy – Fuel and environmental policies can encourage or inhibit the use of home heating oil. If oil demand is expected to decline as the result of a new policy, heating oil prices will probably increase as refineries cut production.
  5. Other heating options – When the cost of to use heating fuel alternatives rises, many homes switch to heating oil as an old standby; this increase in demand will usually drive up oil prices in the short- or medium-term.

As you can see, with so many variables in play it’s not easy to predict where heating oil prices might go in Maine – which is a big reason why we offer heating oil pricing plan options that help you cope with the volatility. We’ll talk more about those plans in Part 2 of this post – stay tuned!

While we can’t predict the price of heating oil, we can guarantee you’ll get fair pricing on every gallon you buy from us – every day, year after year. Contact us today to become a Murray-Heutz customer and see for yourself!