It’s no surprise that the cost of oil fluctuates, but do you know why it changes constantly? Contrary to what polls indicate, oil prices are not controlled by a single person. Instead, a combination of factors determines prices, and each of those factors has several subcategories that are highly relevant.
What Major Factors Affect Home Heating Oil Prices?
There are several reasons why the cost of heating oil can fluctuate, often depending on where you and your supplier both live:
- The Seasons: Even when oil prices are relatively stable, prices tend to rise in the winter, with the highest prices found from October through March.
- The Cost of Crude Oil: Globally, the cost of crude oil fluctuates due to a variety of factors, like the economy, weather, oil supply, and geopolitical events.
- Local Markets: Competition between local companies can cause prices to vary from region to region.
- Operating Costs: The cost of needing to deliver heating oil over long distances and other costs of doing business can vary depending on the area the dealer is located in.
- Natural Disasters: The cost can increase in the case of a natural disaster in a major area where oil is sourced.
“Geopolitical events” have to do with how stable or unstable an oil-producing region is because conflict hinders production. “Oil supply” has two components. OPEC, or Organization of Petroleum Exporting Countries, periodically decides whether they want oil prices to be high or low. OPEC doesn’t control all oil production, but because of the amount produced by member nations, OPEC decisions have an impact.
The other aspect of “oil supply” is supply and demand. So, a warm winter tends to decrease demand, which will affect prices, and very cold winters tend to increase prices. The latter is why some people like to lock in a price with a contract at the beginning of the season.
“Natural disasters” are generally a factor because they affect oil production and processing. For example, a hurricane in the Gulf of Mexico can lead to higher oil prices since a lot of domestic oil processing happens there.
Does Weather Affect Oil Prices?
Yes, weather affects oil prices in several ways. Unseasonably warm weather can drive down the price, while very cold winters will increase it. Hurricanes and other natural disasters can both increase demand for oil and interfere with oil production, which also drives up prices.
What Is El Niño?
El Niño is the name given to an irregular climate pattern that happens periodically every two to five years or so. During normal weather patterns, trade winds blow west along the equator and take warm water from South America towards Asia, and cold waters rise to take the warm water’s place in a process called upwelling. In a period of El Niño, the winds weaken, and the warm water pushes back east toward the western coast of the Americas instead of making it to Asia.
These warmer waters can cause areas in the northern United States and Canada to have dryer, warmer weather, while the southern U.S. and parts of Mexico tend to have more rainfall and even flooding.
Does El Niño Affect Winter Weather?
In the northeastern United States, the effects of El Niño are often warmer and more mild winters. So, while the above-average temperatures can stave off snow, it doesn’t necessarily mean there will be less precipitation. Meaning there is a higher likelihood of major storms hitting across the east coast.
According to the National Oceanic and Atmospheric Administration, El Niño is the cause of the second warmest weather ever recorded in the northeast during the 2022-23 season, and why New York’s first recorded snowfall came much later than ever recorded before. Weather forecasters urge people to try to understand that it’s not just El Niño, but a whole host of factors that go into predicting weather. Arctic Oscillation can cause sudden drops in temperature, Madden-Julian Oscillation can increase the amount of precipitation, and of course, climate change also factors into everything climate scientists have to consider when predicting the weather.
Does El Niño Affect Heating Oil Prices?
There is an indirect relationship between El Niño and heating oil prices. A strong El Niño event tends to reduce the demand for heating because, obviously, warmer temperatures require less manufactured heating. In the El Niño of 2015-16, the number of US heating degree days (HDD), a measurement that reflects the heating needs of buildings in an area, was 18% lower than the previous winter season.
During an El Niño, prices tend to drop along with demand, but as the El Niño occurrence dissipates and weather conditions return to normal, the prices of heating oil will also increase
Does El Niño Affect Natural Gas Prices?
Natural gas prices during an El Niño event also appear to fall slightly, but it seems to depend on the overall reserve and other factors.
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