Have you ever wondered why heating oil prices change so much? It is the same product in January as it is in February, so why does the price change? Here are four reasons that the prices fluctuate.
1. Demand
While various influencers can affect heating oil prices, one of the most influential is the level of demand for the product. Demand and supply work like this. If there is a surplus of a certain product and no one wants to buy it, the product will be sold for a very low price. The producer simply wants to rid his shelves (or virtual shelves) of the product and get in on a market that has more demand. When demand rises – meaning more people want that product – the price will rise. Because more people desire the product, it is seen as valuable, and the price will be higher. Heating oil is more sought after in the winter, while almost no one is buying oil to heat their homes in summer. This means that when winter comes and everyone does want to buy heating oil, the price is going to rise with the demand. This causes the price to fluctuate with the seasons.
2. Crude Oil Changes
Crude oil is the main component of heating oil. If the price for crude oil changes, the price for heating oil will also need to change to keep the margin of profit the same for the companies selling heating oil. Crude oil prices can be affected by its availability. If an oil well that has been dependable for years burns out, that source of oil is no longer available. There might be some panic involved, but ultimately, the price for heating oil needs to rise to keep the system balanced.
3. Competition
When there is competition among heating oil sellers, the prices will go down. For example, a seller wants you to choose to buy from them, so they try to lower their price. Other companies also want to be chosen, so they lower their prices as well. It sometimes becomes a battle of who can offer the cheapest product. This battle benefits you as the consumer. In rural areas, there might not be as much competition, so you might have to pay a higher price for your heating oil.
4. Operating Costs
The location of the dealer also affects heating costs. Depending on how much it costs them to deliver the heating oil to you, they may charge more or less. If you are farther away, their operating costs are higher, and they need to charge more in order to make a profit.
These four reasons determine how much the heating oil costs will fluctuate. There will always be a small fluctuation in price, but larger fluctuations will happen when supply is suddenly dropped or demand is suddenly raised. If there is a lot of competition, prices will be lower than usual. But if the operating costs are high, the prices will need to be raised.
