About Heating Oil Pricing: Part 1 of 2

Our customers ask us lots of questions every year, but two of the more common ones are “what will my heating oil cost this year?” and “what’s the best way to pay for it?”

The honest answer to the first question – for us or any other heating oil supplier – is “we don’t know.” The answer to the second question is “it depends.”

Vague answers, we know…but don’t worry – we’ll explain what we mean in this two-part blog post on heating oil basics.

The ever changing price of heating oil

As you may have noticed, the price you pay for heating oil can change – sometimes considerably – from one heating season to the next. This happens because many forces influence the market price for heating oil.

Here are five of the most important ones:

• Crude oil pricing – The cost of crude oil can account for anywhere from 50 to 70 percent of the price of heating oil, making it the most important factor in heating oil pricing (marketing, refining, and profits contribute to the remaining costs). Of course crude oil is traded as a global commodity – which means it is subject to many market forces that make its price so volatile.
• Weather – Heating oil pricing in the U.S. is driven by the Northeastern corridor of the country, since that’s where about 90 percent of the nation’s supply is consumed. If the winter in this area is relatively warm, heating oil prices may stay level or even go down in the region; but when winter is cold or changeable (as it was this winter), prices usually rise.
• Competition – If you live in an area where many heating oil companies compete (as we do here in Rhode Island), price tends to be lower. Proximity to shipping ports also affects heating oil pricing.
• Government policy – The political climate can encourage or limit the use of home heating oil; if 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 alternative fuels rises, many homes switch to heating oil, raising demand for the latter; this increase in demand typically drives up oil prices in the short- or medium-term.

As you can see, there are many variables that determine where heating oil prices might go in Rhode Island, which is why prices are so difficult to predict. That unpredictability is a key reason why we offer heating oil payment plan options that help you manage the risks associated with heating oil pricing. 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 do guarantee you’ll always get a fair price on every single gallon you buy from us. Contact us today to become a Vaughn Oil customer and see for yourself!