How does heating oil pricing actually work?

Heating prices rise from:

-Lack of supply
-Global political unrest
-Threat of war.
-Rumors of OPEC production cuts
-Being used as a temporary safe haven for investors (hedge fund, etc).
-Lower inventory after weekly/monthly/quarterly reporting.
-A little due to extreme weather.

-But what really makes the price rise is that gas utility companies lure heavy users to natural gas and give them big discounts as dual fuel users (interruptibles) with the contractual obligation when the utility company tells them, they have to switch back to heating oil. This happens when the weather is extremely cold and gas utility companies simply don't have the product and the infrastructure to provide enough natural gas.
So now at the refinery, every day these last 2 weeks, there are dozens of tractor trailers pulling heating oil, driving up prices, causing allocation exhaustion. The regular oil customer pays the price. And the large users of gas, who were 'saving money' get that wiped out by having to use the higher priced heating oil-which they caused by being an interruptible.
Everyone loses.
Except the refineries and the gas utility.
Couple that with the fact that Trump is currently threatening to send an armada to Iran, and do something about Cuba, causing fear in the commodities market.

Oil prices used to drop when the entire northeast got a huge snowstorm as demand from jet fuel, trucking went way down as they weren't using the distillates. Not anymore.

The bottom line, many reasons for prices to rise. Only basically 2 for them to fall. Oversupply, and failing (or perception of failing) economy (remember covid?).

@HydronicMike I don't understand why mess around with natural gas when you have a stable supply of heating oil.

I used natural gas just for cooking and hot water when I used heating oil.

And if a big 3000 liter puffer for storing excess energy is used with an oil burning unit ,you never lose much energy.

If it's a condensing oil unit with barely warm exhaust(50 Celsius) natural gas becomes obsolete 😁

If it's condensing oil furnace WITH hot water coil too ,then you'll forget about natural gas alltogether 🙄

you had cheap heating oil.

here in Romania it's always been $3.84 a gallon(3.7 liters).

Only solution to these price swings is bigger fuel tank.

Or steel barells 200 liter ones besides what you order.

A friend of mine is doing this every summer:

orders a few thousands liters more than what his fuel tank can be filled then pumps it directly from the supply truck in those steel barells.

Not that "legal" but what a hell, it's Romania and it's doable 😁

And the truck tank driver keeps quiet.

And when your main fuel tank gets low ,just use a 12/24v pump to transfer/fill up from the 200 liter steel barells!

It's harder if the temperature is low (minus 10-20 Celcius) but still you can do it.

Better than buying at high prices or freeze to death until the truck driver arrives with your expensive heating oil...

Since I have the dangerous goods authorization even for fuel truck tankers I was thinking of buying an old truck tanker 10000 liters 2500-3000 gallons drive to supllier fill up and use that for the winter 😁

Parked outside. just pipe it to the house.

What could go wrong? 😂

It has to be the rumor of the US attacking Iran. It may lock up the Hormuz strait which may slow the export of oil from the middle east. Big money is scooping up the oil in preparation causing a strain on supply. As @Gabriel82 said, the only way to ride it out is by having a very large oil tank and filling when prices are low. Some petro consuming businesses call it tankering.

But would that not also affect the cost of diesel and gasoline, both of which remain stable, and indeed, have been dropping a bit since the first of the year?

Another — perhaps simpler — take. In the US and at least most of Canada, the final dealer is free to set whatever price they want on their product — in this case heating oil. They will set it based on what it costs them plus enough extra to cover the other costs involved in picking it up at a wholesale rack and gettting it to your tank, plus that dirty word "profit". The profit can and does vary, depending on the dealer's view of how much you are willing to pay — it's usually pretty small.

The other costs the dealer has to pay vary widely, and account for a good chunk of why a given product will be more expensive in one place than in another not far away.

The wholesale price is the interesting one. The "spot" market price fluctuates rather wildly depending on world conditions but more on local demand variations. This is the price the dealer has to pay, though, to serve their "on demand" or "COD" customers. The "futures" price also fluctuates, but not much in response to local demand variation This is the price the dealer purchases fuel at f(in fact, the good ones do purchase futures to cover this) or customers who commit (and usually pay ahead) to purchasing a given amount of fuel in the future — that is, next winter. While it's not always lower than the spot price, it almost always is — sometimes dramatically so.

The people who sold the futures are committed to deliver that much fuel, whatever happens. Playing the futures market in any commodity is distinctly risky, but you can make a bundle on it if you guess right. You can also lose a bundle…

Things like extreme weather, the machinations of ultimate suppliers like OPEC or Russia, the devious dealings of shadowy oligarchs, and other bogeymen affect, but do not control, current futures prices, but do NOT affect the cost of oil purchased under previously purchased futures.

All of which is by pre-buying oil in the spring or early summer can be very advantageous.

I think Mr Coach is on to something:

• The increase in heating oil prices in January 2026 can be attributed to several factors:
• 
  
• Higher demand: Colder weather typically leads to increased household energy consumption, which can lead to higher wholesale prices and, consequently, higher retail prices for heating oil. 
• 
  Regards,
• RTW

That is interesting…..I cant imagine that there are a lot of homes that burn oil. Diesel is diesel. And, Road diesel is taxed higher than heating diesel. Yet, road diesel is cheaper….I would use road diesel if I heated with oil. Five gallons per day.

Actually, where I live, NC, heating oil is about 25 cents cheaper. Must be a regional thing.

US Energy Information Administration is an excellent source of detailed info on heating oil and natural gas prices, supply and demand forecasts, etc. Here's their general explanation of the factors involved:

https://www.eia.gov/energyexplained/heating-oil/factors-affecting-heating-oil-prices.php

Here in MA, 20% of homes are heated with oil.

https://www.mass.gov/info-details/how-massachusetts-households-heat-their-homes#:~:text=How%20Massachusetts%20Heats,referring%20to%20the%20ACS%20data.

New England does not have sufficient natural gas pipeline capacity; a combination of environmental activism and government preference have prevented expansion, so in very cold weather many large users must switch to fuel oil, with predictable results on the spot market price.

This article from the Energy Information Agency from almost exactly one year ago describes an apparently identical situation in which peak electrical demand was supplied by oil and coal instead of natural gas. Given our current cold snap in the Northeast, history may be repeating itself.

https://www.eia.gov/todayinenergy/detail.php?id=64484

@jesmed1

My brother works in a municipal power plant here in Ma. They burn either #2 oil or gas. Most of the time because they are not a huge plant and are a more expensive plant to run, they sit idle waiting for the call from ISO New England to go on line.

This could be due to increased demand (like weather extremes) or if another plant goes down due to an emergency or planned maintenance.

With the weather we have had they are on line now burning oil. Every year they go off gas (I think in October) because the gas company can't supply them in the winter. There are several things going on in MA. not to get into politics but they cancelled 2 gas pipeline projects and the windmills some think are great can't produce enough power to cover their maintenance costs. In addition, NE used to have around 8 nukes which I think 1 is left so they have backed themselves into a corner with not an easy way out. Solar is a drop in the bucket and doesn't work in 2' of snow.

So yeah no doubt energy prices are up. Everyone around here is complaining about Eversource that sells electricity and gas, some say its the Governor.

All i know is I am lucky to live in Chicopee which has its own electric company owned by the city I guess. There are a few of them in this area. Westfield, Holyoke, South Hadley and Chicopee all located in a 8 mile radius have their own electric companies and keep the prices down

@EBEBRATT-Ed

Very interesting. So your brother has direct insight into the bigger picture of where our electricity comes from. I live in Norwood which is also a "municipal light plant" town with its own electric co (Norwood Electric).

It's unfortunate that we seem to have backed ourselves into a corner re energy here in the Northeast. We could have done like the French and build some more modern nuclear plants as a bridge to wider-scale renewables, but now we're stuck with both insufficient renewables and insufficient natural gas distribution.

At least we're not having to burn the furniture to stay warm…

@Don_175 Yes, a discount dealer is going to be cheaper, and if I were the sole homeowner, I might go that route. But because we're in a condo association, the other owners want the reassurance of having a full-service oil company for emergency repairs, etc. So we're taking the "middle path" of paying more for a full-service oil company while still getting some discount from the Green Energy pricing.

One thing I've found about the Green Energy pricing is that they "force" their dealers to lower their retail prices more or less in lock-step with wholesale price reductions, while the other dealers take longer to pass the wholesale price drop on to their customers. So the most benefit of the Green Energy pricing comes when oil prices are falling.

The old supply and demand. And then there's price gouging.

When we burned oil in our buildings, we negotiated with a smaller dealer to serve us at the price posted daily in the Wall Street Journal. This avoided the gouging nonsense and he was happy to sell us the oil, making a steady profit and got our business for twenty years.

We upgraded to gas when it became the cheapest choice about twelve years ago. With New York's push to outlaw gas and oil heating, we're moving to electric heat, paid fully by the tenants in many of our apartments.