Home Heating
What Affects
Heating Oil Prices?
It All Starts At The Source
Why is the cost of Crude Oil important to costs throughout each stage of production? And how does this affect heating oil prices?
Heating Oil (both kerosene and gas oil) are distillates extracted from crude oil through the process of liquid separation.
Commonly called “cracking”, this process involves putting crude oil through a refining and heating which separates it into different fuel densities. Heating oil is one of these, and because it is a product of crude oil, the price of crude has a direct affect on the production and distribution costs of the home heating oil you end up receiving.
So, if the price of crude changes so does the approach of the home heating oil producers and distributors.
For the reasons mentioned above the price of home heating oil stays roughly proportional to crude. All refiners need to purchase raw crude oil on the open market – meaning this cost will directly influence the price they charge for refining the home heating oil.
Production
If the refiner can purchase crude cheaply they will typically produce more which will increase supply and thus reduce the price. Alternately, If the price of Crude rises, they will produce less refined oil which will drive the price up for the distributors seeking to purchase the heating oil. Another unexpected variable that can affect price of home heating oil is the Exchange Rate – It might seem unrelated to Ireland but all oil products are traded in US Dollars. Which means the exchange rate against the Euro will always have an impact on the local price of heating oil. A stronger Euro usually means a lower price for oil.
What Global Events Increase Heating Oil Price?
A strengthening global economy – which increase the demand for Oil.
A decrease in crude oil production (eg. Voluntary or Sanctions/conflict) – which decreases supply.
Extreme weather or dropping temperatures which increases demand.
What Global Events Decrease Heating Oil Price?
An increase in global crude oil production – which increases supply.
A slow-down in the global economy which decreases the demand for
oil.
An increase in average temperatures which decreases demand for oil.
Distribution
Once refined, the oil must be passed over to the distributors so they can transport the oil to where it is sold and consumed. As the previously mentioned shifts in supply, demand and cost take place – the effects trickle down the supply chain as distributors will buy more or less depending on the relative expense to their operation. Though it should also be stated that the industry components of cost associated with storage, distribution and delivery are relatively fixed as are excise duties.
Top Tip: Spread Out Costs with Budget Plan
If you're concerned about heating oil prices, you could spread the cost of your oil purchases over the year? Our Budget Payment Plan might be the answer. The Certa Budget Payment Plan allows you to pay for your annual Home Heating Oil orders over a 12 month period with monthly Direct Debit payments to your Budget Plan account.
What About You?
Ok, Ok… But how does all of this affect your wallet? and what part does your local network have on changes to Heating Oil Prices?
So like we’ve seen, on a wider scale: national supply and demand for the main heating oil products, kerosene and Gas oil, will impact the price.
But changes can occur on a more local level also. If there is a regional issue damaging supply such as extreme weather conditions, shipping errors, worker strikes or other logistical issues, prices can rise. The good news for Irish people is that, at a local level, Ireland has a highly concentrated number of oil suppliers and distributors so access to wholesale oil stocks is relatively good.
The shifts in cost will of course also affect the behaviour of the customer. Customer demand will fall off if the price of home heating oil rises, and if the cost of crude drops, dragging the price of oil down with it – consumers will buy more of it to take advantage of the savings.
Aside from the trickle-down effect of Crude oil prices, the price of these refined products may move independently of the crude oil price and reflect the actual market conditions; for example, prices will tend to rise with a weather driven surge in demand across Europe.