MyValueResearch

Heating oil

Heating oil, or oil heat is a low viscosity, flammable liquid petroleum product used to fuel building furnaces or boilers. It produces 138,500 British thermal units (146,100 kJ) per gallon and weighs 7.2 pounds (3.3 kg) per imperial gallon (0.72 kg/l), which is about the same heat per unit mass as the somewhat less dense diesel fuel. It is refined from crude oil, and therefore follows crude’s price trends. When crude oil is refine, about 25% of the oil becomes heating oil and about 50% become gasoline. Refiners are limited in the amount of heating oil they can make to meet the demands of the winter heating season. It is mainly used by many Americans to heat their homes during winter season i.e October through March.

The United States has two sources of heating oil: domestic refineries and imports from foreign countries.  Refineries produce heating oil as a part of the “distillate fuel oil” product family, which includes heating oils and diesel fuel. Distillate products are shipped throughout the United States by pipelines, barges, tankers, trucks and rail cars.   The United States produces about 85 percent of its heating oil, while the remainder is imported from Canada, the Virgin Islands and Venezuela.

Heating oil is commonly delivered by tank truck to residential, commercial and municipal buildings and stored in aboveground storage tanks located in the basements, garages, or outside adjacent to the building. Heating oil is very similar to diesel fuel. It is used to fuel furnaces in homes or buildings. It is usually dyed to distinguish it from taxed vehicle fuel.

India’s leading commodity exchange, MCX which has an array of energy contracts such as Brent crude oil, electricity, natural gas and ATF expanded it energy futures segment by launching futures trading in ` Heating Oil` for February, March and April months.

 
Factors Effecting Heating Oil Prices:

Seasonality in the demand for heating oil - When crude oil prices are stable, home heating oil prices tend to gradually rise in the winter months when demand is at the peak. 

Changes in the cost of crude oil - Since crude oil is a major price component of heating oil, changes in the price of crude oil generally affect the price of heating oil. Crude oil prices are determined by worldwide supply and demand.  Demand can vary worldwide with the economy and the weather condition while OPEC and other factors can influence supply.

Competition in local markets – Competitive differences can be substantial between a locality with only one or a few suppliers or dealers versus an area with a large number of competitors.  Consumers in remote or rural locations may face higher prices because there are fewer competitors.

Regional operating costs - Prices also are impacted by higher costs of transporting the product to remote locations.  

Heating oil is refined from crude oil so there is positive correlation between heating oil and crude oil prices. Most years, the price of Heating Oil climbs up to reach a high point in August. This coincides with consumers stocking up on oil for the winter. Some consumers lock in the price at this point and buy a full winter’s worth of oil, but many buy a smaller amount with the intention of restocking as needed. With the buying pressure off by October, the price of Heating Oil falls.