WHAT IS HEATING OIL

Heating oil is a diesel fuel designed for use in home oil burners, furnaces and boilers. It is basically the same fuel which powers some cars, most large trucks, busses and trains. However, heating oil is spent in greater amounts, and for its economic use needs to be tax-exempt. To tell it apart from diesel fuel used in motor vehicles, heating oil is dyed red, thus marking it as tax-exempt and it’s not allowed for use for any other purposes beyond heating.

Heating oil is widely used in the US and many other countries, and is known for its great energy potential. Until recently, it was allowed for heating oil to have higher levels of sulfur than diesel fuel for vehicles, but the newest regulation demands low sulfur levels in heating oil as well. With low sulfur levels heating oil is quite a clean source of energy. Some heating oils contain a certain percentage of biofuel – diesel fuel made of seeds, plants or used and filtered cooking oil. Heating oil blends which contain 5% to 20% of biofuel have a greater viscosity and are cleaner, which benefits both the environment and the burner’s lifespan.

One gallon of heating oil can deliver 138,500 British Thermal Units (BTU’s) of heat. This huge energy potential can heat your home quickly, without much effort.  Heating oil is a mix of large hydrocarbons, and is made through fractional distillation of crude oil at temperatures between 200C and 350C degrees. Thanks to its ability to heat space very quickly, heating oil remains very popular in areas where harsh winters are not uncommon. Heating oil is delivered to consumers by truck and is stored in oil tanks. Tanks may be kept on surface or underground, which makes use of heating oil very safe, especially regarding fire hazard. Burners which turn oil into heat are very durable if proper maintenance is taken regularly, and these devices may offer up to 20 years of reliable service. Homeowners can perform some basic maintenance tasks on their own, which saves them money. Oil burners are simple, inexpensive and ready to be regulated with modern digital and smart thermostats. Once properly installed, oil heating system don’t leak or spill, making it the safest possible way to heat a home.

Where does Heating Oil come from?

About 90% of crude oil consumed in the US has a domestic origin. 10% of the oil is imported, primarily from Saudi Arabia.

The first step in heating oil production is crude extraction. Crude oil is derived from deep underground of land or ocean, or from oil shale. From extraction platforms, crude is delivered through pipelines, or with use of tanker ships to refineries. Heating oil is derived mainly from domestic crude oil. In refineries, crude oil is condensed at 250C to 350C. The result is “distillate”, a low-viscosity oil which is further divided into diesel fuel and heating oil.  As in many states levels of sulfur are now equal for both motor diesel and heating oil, it only takes dying the latter to make it tax-free and suitable for home heating only. As the crude is extracted continuously, it is flown steady to refineries, it needs to be processed year-round and stored for winter use. Large storage terminals are usually built adjacent to major ports or railroad hubs. Barges or trains then deliver oil to storage facilities of the retailers, who finally deliver it by truck to households as end-users.

Although the production takes place all year round, it is highest during autumn, when consumption of gasoline and jet fuel is relatively low, which allows more capacities for heating oil. It is usually enough to fill major storages, but as the peak heating season gets close, these reserves are spent quickly. This is why heating oil production remains high during winter, starting to fall significantly by the end of February, when temperatures start to rise. Limitations from heating oil storages may sometimes cause its shortages, most common examples are disasters such as hurricanes Katrina and Wilma. These events caused temporary shutdowns of production capacities in the South during early Autumn of 2005. However, this is a rare occasion and during most years production and storage capacities are never compromised.

Biofuel is another source of heat which is added to heating oil in concentrations ranging from 5% to 20%. Biofuel is a renewable source of energy, originating from plants such as rapeseed or used and filtered cooking oil. Biofuel heating blends are called Bioheat and usually have stakes between 5% (B5) and 20% (B20). These blends are viscous, which helps lubrication of burner components, extending its life. A greater stake of biofuels. However, greater concentrations of biofuel in heating oil can potentially damage some sensitive parts of the burner, especially older ones.

HEATING OIL USE

heating_oil_consuming_statesAbout 6.5 million households, or about 5.5% are reported to have been using heating oil for 2013-14 heating season. Majority of these households are concentrated in the Northeast (87%). While recently many people from other parts switched to other sources such as natural gas or electricity, the Northeast remains faithful to it as it’s much cheaper than the electricity, safer than natural gas and more efficient than both of these. Winters in Northeast can be really cold, and in such conditions heating oil’s capabilities excel. Oil needs little time to warm up and provide enough heat to the entire home, even if started at very low outdoor and even indoor temperatures. That explains why it remains widely used in Canada or the former Soviet Union.

This way of heating allows high independence from a single supplier, which is not the case with electricity and natural gas. Households can always choose another supplier and compare prices among them. However, some companies offer contracts, where consumer agrees to pay always the same price during a certain period, but these plans often include scheduled maintenance tasks carried out by the contractor’s personnel. Another option is called Cash on Delivery (COD). COD heating oil is sold at a lower price and with use of price comparison services to find the cheapest option, savings households make this way can be substantial. However, people using the COD option need to familiarize with basics of heating oil systems, which includes measuring levels of remaining oil in the tank, or some basic maintenance tasks as filter replacing or cleansing.

HEATING OIL PRICES AND HOW THEY ARE DETERMINED

heating oil pricesSince it’s basically diesel fuel distilled from crude, heating oil prices are largely influenced by prices of crude. Heating oil prices were hitting high during the mid-2000s. Many households believed that oil prices will remain high forever, and opted for natural gas or electricity. However, in 2009. These prices went down again, remaining at relatively low levels until 2011. However, from 2011 to 2014 these prices hit very high again, but still far below to all-times high from 2008. From2014 onwards prices of heating oil are again very low.

There are many ways to save with heating oil and to get it at discount t prices. Besides COD, when the household pays for the fuel when it’s delivered, entailing a good discount, a good option is filling the tank off-season. Due to low demand, prices of heating oil drop significantly by the end of March, to remain this low until September. Major limitation for off-season order is the home oil tank capacity – until the new season begins, it can be filled only once. The greater your tank is, the more you can save by off-season delivery.

Prices of oil can also vary among suppliers. All suppliers depend on their storage capacity, and if they need to empty it quickly for the next delivery, storage tank cleansing or relocation, so they sell oil at a very low price to get rid of it.  Some other suppliers may also be able procure it at a lower price benefiting from various contracts they have with oil refining companies. These price variances are the greatest during peak season and consumers who purchase COD oil can have great benefit from that.

Finding the lowest heating oil price in the area was once a long journey, but price comparison services such as HeatingOilExpress.com help consumers find it after just few clicks, without any fees. This is a remarkable breakthrough as once it was needed to make many phone calls to find the cheapest oil, which cost both money and time. The only disadvantage of COD is that consumer needs to have cash in hands or their credit card at the delivery day, but anyone able to monitor oil levels in their tanks can easily plan their heating budget.

Combining all these ways to save, heating oil can be made a very cheap source of winter heat, even when oil prices are on the rise. It is also good to mention that heating oil prices change at a much slower pace than prices of crude. So if the prices of crude grow by 6% over a certain period, heating oil prices would grow only around 3%, making prices of heating oil more stable than those of natural gas.

During the 2013-2014 season, retail heating oil prices varied between $2.80 and $3.60 per gallon.

To heat a 2000 square feet home on Long Island, it takes around 700 to around 1500 gallons annually, which depends mainly on burner condition, house thermal insulation quality, weather and lifestyle of inhabitants.

FACTORS AFFECTING HEATING OIL PRICES

Heating oil is a seasonal good, which means its price will be the highest during heating season which lasts from October through March. As heating oil is not used for anything else but just heating, its consumption is very low during spring and summer.

Another major factor which contributes to heating oil prices is the price of crude oil. This price is largely determined by worldwide supply and demand of oil. Factors which influence it may be various: political conflicts and unrests in countries which export large amounts of crude, economic trends such as growth, recession, inflation or employment levels in countries which are major consumers of oil, and others. Oil is a strategic commodity which is publicly traded on world’s largest stock exchange markets. Traders and brokers regularly follow news from around the world to find events which have a possibility to change future trends in crude oil production, transport, refining and consumption.

Weather is also a factor that can play a great role. As mentioned above, the hurricanes that hit the South during 2005 closed most of  extracting and refining facilities in that part of the country, which caused high heating oil prices for few months beginning with September. On the other hand, very cold weather during heating season can increase oil consumption in short term, and at that point refiners can’t increase output any further. This can lead to sharp, yet usually short-lasting price jumps.

Finally, local market can also play a role in determining retail prices of heating oil. Some areas, such as Long Island are highly urban, having a lot of consumers and supplier companies who fight for them. This increased competition makes supplier operate at a low margin, and their success in business is reached by serving a large number of customers. This low margin along with other factor contributes to very affordable prices and discounts households can get by meeting certain conditions.