What Causes a Surge in Heating Oil Prices?

Home heating oil prices sometimes can change dramatically in a short period of time. Why does this happen? If refiners, wholesalers, dealers and consumers have enough heating oil in storage and temperatures do not drop rapidly, prices hold fairly steady (assuming crude oil prices are also not changing much). However, a rapid change to colder weather can impact both supply and demand; people want more fuel at the same time that harbors and rivers are frozen or delivery systems are interrupted. During this time, the available heating oil in storage is used much faster than it can be replenished. Refineries normally cannot keep up with demand during these cold periods.

Wholesale buyers become concerned that supplies are not adequate to cover short-term customer demand and bid up prices for available product. In the Northeast, for example, additional supplies may have to come from some distance away, such as the Gulf Coast or Europe. It costs more to transport heating oil from these sources to the Northeast, and it also can take two to three weeks to arrive. During the time that resupply from distant markets is occurring, the supply of heating oil that sellers in the region have in storage drops further, buyers’ anxiety about finding heating oil in the short term rises, and so do prices �" sometimes sharply �" until new supply arrives. Additionally, during very cold periods, prices of other heating fuels (such as natural gas or kerosene) may increase even more than heating oil prices. In this case, some consumers may switch from using their normal heating fuel to using heating oil, thereby increasing the demand for heating oil.

What has led to increased prices for heating oil?

Home heating oil prices can sometimes change dramatically in a short period of time. Why is this happening? If refiners, wholesalers, dealers and con-sumers enough fuel oil in storage and TEA-peratures Do not drop rapidly, prices hold fairly steady (based on the price of crude oil also does not change much). However, rapid changes in cold weather can affect supply and demand: people want more fuel at the same time, bays and rivers are frozen or delivery systems interrupted. During this time, the available heating oil in storage is much faster than it can be replenished. Refineries normally can not keep pace with demand during these cold periods. Wholesale buyers are concerned that materials are not sufficient to cover short-term customer demand and bid up prices for available products.

In the Northeast, for example, additional material may come from some distance away, such as the Gulf Coast and Europe. It costs more to transport fuel oil from these sources in North-East, and it may take two to three weeks prior to arrival. During that replenishment from distant markets that happens, the supply of heating oil that sellers in the region in storage drops further, buyers' worries about the location of heating oil rises in the short term, and the same prices - sometimes dramatically - until new supply arrives. In addition, during very cold periods, prices of other heating fuels (such as natural gas or kerosene) could rise even more than heating oil prices. In this case, some consumers may switch from using their normal heating fuel using fuel oil, thereby increasing demand for heating oil.

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