What Goes Up, Must Come Down
While your local Wisconsin heating oil company cannot control what happens with oil prices that are tied to the global market, we can give you some understanding about why heating oil prices rise and fall on a steady basis.
We need to start by looking at the price of crude oil, which is usually the most important factor in the price that consumers will pay for their heating oil. Like gasoline and jet fuel, heating oil is just 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. So, when crude oil prices are on the high end, so too are heating oil prices—along with gasoline, diesel fuel and many other products.
Fallout from the Russia-Ukraine War
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. As you can guess, any interruption of that massive supply causes major ramifications.
In fact, 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 before the Russian invasion caused energy prices to rise based on speculation in the stock market about what could happen in the near future 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 know by now, energy prices soared even higher as a result.
Another Big Factor: Supply and Demand
Before the uncertainty created by the Ukraine war, oil prices had fluctuated because of COVID-19. In spring 2020, crude oil prices actually plummeted to historic lows when economies locked down across the globe. Oil production essentially ground to a halt.
Another supply-demand issue has centered on diminished refinery production. This came into the forefront when demand increased as COVID-19 cases decreased. 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.*
Seasonal Demand, Operating Costs and the Weather
In a brutally cold winter, prices often rise. Labor costs, transportation, and storage costs contribute to the price of heating oil just as they do for other businesses and industries. For example, when gasoline prices rise, heating oil suppliers must pay more both to get heating oil supplies delivered to them, and to fuel the trucks that deliver heating oil to their customers.
Take Comfort in Heating Oil for Your Wisconsin Home
While prices will always rise and fall, Wisconsin homeowners who rely on heating oil to keep warm will consistently get great value for their energy dollars. Here’s why.
Heating oil produces a tremendous amount of heating energy, providing both efficiency and comfort. For every gallon of heating oil consumed, nearly 140,000 Btu’s of heat are produced. That’s the equivalent of about 70,000 60-watt lightbulbs! It’s also far more heating energy than many other fuels can generate.
Technology has also brought great improvements in heating oil equipment efficiency, which has reduced annual fuel consumption by as much as 40%. Naturally, this has saved heating oil consumers a lot of money on fuel.
Plus, the continued growth of Bioheat fuel is making a big impact because this renewable, clean-burning fuel helps to increase heating oil system efficiency even more and reduces your home heating expenses, all while keeping homes warm and comfortable.
Read more about Bioheat fuel.
*Source: NY Times, 11-10-22