Heating Oil Pricing Basics: Part 1 of 2
Posted: April 9, 2018
Two of the more common questions we get asked by our heating oil customers each year are “How much will I pay for my heating oil this year,” and “how should I pay for it?”
It’s difficult to admit, but the honest answer to the first question is “we just don’t know” – and the answer to the second question is “it depends on you.”
We’ll explain what we mean in this two-part blog post on heating oil pricing basics.
The complexity of heating oil prices
As you may have noticed over the years, the price you pay for heating oil can change – sometimes radically – from one heating season to the next. This happens because many forces come into play to determine the market price for heating oil.
Here are five of the most important ones:
- Crude oil pricing – Crude oil can account for anywhere from 50 to 70 percent of the price of heating oil – by far the most important pricing factor (marketing, refining, and profits contribute to the remaining costs). The problem is crude oil is a global commodity – which means it is subject to many market forces that drive its value up or down.
- Weather – The price of heating oil in the U.S. is driven by homes and conditions in the Northeast, since that’s where about 90 percent of the nation’s supply is consumed. In a relatively warm winter, heating oil prices will often stay level or even go down; during cold or changeable winters, however, the price usually goes up (as we saw this winter). Sudden and extreme weather can have a marked affect on heating oil prices, especially if weather constrains local or regional supply.
- Competition – If you live in an area with many heating oil companies (as we do here in Massachusetts), they are more likely to compete for your business, which lowers prices. Proximity to shipping ports will also affect heating oil pricing.
- Government policy – Fuel and environmental policies can promote 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 production slows.
- Other heating options – When the cost to use heating fuel alternatives rises, many homes switch to heating oil, raising demand for the latter; 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 Massachusetts – which is a big reason why we offer heating oil payment plan options that help you cope with the volatility, based on your level of comfort with risk. 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 Pioneer customer and see for yourself!