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World energy prices have certainly grabbed the spotlight lately. With
crude oil prices topping $75 a barrel and gasoline prices exceeding $3 a
gallon, the headlines have not been very comforting.
Oilheat customers have been feeling the pinch as well. Higher delivery
prices and monthly statements are affecting everyone’s wallets.
We know you have some questions as we approach the heating season and we
hope this guide will provide you with some answers. |
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Why are homeowners paying more for
heating oil? |
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The cost that we pay for the oil we
sell to you (the wholesale price) is over 30% higher than it was last
year, including oil we are buying now for winter deliveries. This
has put dealers across the country in a difficult situation. Nobody wants to pass on this expense to
customers, but shouldering the added burden would put even the largest
companies out of business. |
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What is causing prices to rise?
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Cost of the raw product has
gone up...
Crude oil accounts for about
50% of the wholesale cost of a gallon of heating oil. When crude
prices rise, this affects everything from heating oil and gasoline
to even natural gas prices. And as of this writing, crude oil is up
77% over last year.
World demand is
higher...
Rapid industrial development
in China, India and other developing countries, combined with the
economic recovery in the U.S., has resulted in a greater demand for
oil. World energy demand hasn’t risen this fast since 1996, says the
International Energy Agency.
...and investors are staying
skittish.
In the commodities market,
even a perceived change in conditions causes a heavy volume of
buying and selling. Oil traders estimate that unrest in the Middle
East has added a “risk premium” of $12 to a barrel of crude oil.
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What About Natural Gas? |
Natural gas and propane prices have
shot up recently as well. And remember, in most states where oil has a
significant market share, oil has been cheaper than gas for nine of the
past ten years.
How long will prices stay like this?
We wish we had better
answers. The energy market is so volatile right now that
heating oil prices have gone up and down 10 cents a gallon
or more in as little as three days.
- If real disruptions do
occur in the Middle East, crude oil prices could rise
even higher. If current fears prove unfounded, or if
supply increases, crude prices could plummet, which
would eventually cause heating oil prices to drop as
well. And of course, the weather will play a role during
the winter because it affects demand.
- People sometimes forget
that over the last seven years, wholesale heating oil
prices have twice dropped as much as 17 cents per gallon
during two of the last six years (Jan. 1999 and Jan
2002. And in real dollar terms, the price of heating oil
is half of what it was in the ’80s.
What can I do about it?
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