What Affects the Price of Fuel Oil?
You’ve probably wondered what factors impact the price of fuel oil. The way these prices fluctuate can seem random, but they are actually influenced by some well-known factors.
Before getting into the exact factors that affect the price of fuel oil, we should let you know that heating oil is typically sourced out of crude oil. Crude oil is traded at per-barrel prices in large quantities, which usually ends up being a total of a thousand barrels (equaling 42,000 gallons, or 150,000 liters). The price of this per-barrel purchase will fluctuate depending on the long-lasting economic principle of supply and demand.
Price of Fuel Oil Factors
Supply & Demand
Like virtually any resources or products that are sold in the world, fuel, oil or any other kind of oil resources are priced based on how much is available and how many people are buying—but the story doesn’t end there. Heating oil prices can be impacted by external factors as well, typically significant world news events. Geopolitical conflicts in the Middle East are common examples of incidents that can impact the price of fuel oil on a worldwide scale.
Take for example the drone attacks in the oil industries of Saudi Arabia in early September. These facilities accounted for half of Saudi Arabia’s oil resources, which is also roughly 5% of the entire world’s oil reserves. This had an immediate effect on global oil prices that saw the price of fuel oil see an increase as high as 15%.
It’s not uncommon for fuel distributors to quickly react to events of this nature and adjust their prices accordingly. Because oil production is so intertwined with political tensions, its market price is also going to be affected by these incidents.
Rate of Production
When oil facilities like the ones in Saudi Arabia are attacked, oil production goes down. When production is down, supply goes down as well. And since oil is a commodity like any other product in the world, prices go up when a limited supply makes an item rarer. That’s just how economics and logistics work.
You should also keep in mind that you have more in common with fuel oil suppliers than you might initially think. Whether we’re talking about someone fueling up at a gas station or an oil provider purchasing supplies from a wholesaler, both of these people are paying prices based on the factors of supply/demand and worldwide tensions, as previously discussed.
Fuel and heating oils also have more in common with gasoline than you might think, as they are all made out of crude oil. Therefore, if you see the price of gas fluctuate then you can safely assume that heating oil prices will waver in the same direction. If you are at all concerned about the rising prices of these resources you should stock up on oil in the fall rather than in winter. It’s usually a safe bet that prices will be at their highest when the temperature is at its lowest.