Five factors affecting heating oil prices

Five factors affecting heating oil prices

As a heating oil provider we know that our customers look for two things from us, a good service and a good price. We’ve maintained the good service since 1932, that we can control, but the heating oil price has a number of different factors that will determine its ultimate price. Oil prices vary on a daily basis and its worth looking at why this should happen. In no particular order, here are the top five variables that determine oil price around the globe.

The economy in China

In 2013 China was recorded as the second largest importer of liquid fuel in the world, secondary to the United States of America. How China progresses in the future will dictate demand. According to the U.S Energy Information Administration’s projections, China is expected to burn through 3 million more barrels per day in 2020 compared to 2012, which accounts for a quarter of global demand over the same time period. However nothing is certain, and China’s growth rate looks to slow while a projected boost in economy is never certain. china economy                    

 

 

American shale production

The recent boom in shale oil and gas production in the U.S. has seen the production of more than 9 million barrels of oil per day, an increase of 80% from 2014; An engineering triumph but a poisoned chalice for oil prices. As supply shoots through the roof and demand remains stable, barrel price is hit hard. Once oil prices are low, drilling rigs are forced out of action deemed financially unviable.

Elasticity of demand

The customer holds a lot of power when determining a stable oil price. Lower oil prices may seem attractive, creating an upsurge in usage, further car journeys, and fleet vehicles holding off from cleaner fuel plans. However, the unpredictability of oil prices may see consumers reverting to their usual behaviour. As attractive as low prices are, any sudden increase in oil consumption would also see an eventual increase in price.

OPEC (Organization of the Petroleum Exporting Countries)

OPEC remained rigid on oil production levels throughout 2014. Saudi Arabia, OPEC’s largest oil producing member stubbornly carried on producing a high number of barrels despite the price going into freefall. It failed to accept that oil prices may never recover from such a slump and told the world that it was only a matter of time before things would be back to normal. The decisions made at OPEC not only determine the world’s oil production but the world’s economy.

Geopolitics

Flashpoints around the world that once rocked oil prices tend only to have a short term affect these days. ISIS taking oil fields in Iraq and the 2010 Arab Spring would once have created turmoil on oil prices, but due to the glut of reserves around the world this is no longer the case, only creating small glitches in price, rarely felt by the consumer. We hope you've found this summary of the factors affecting heating oil prices useful. If you'd like any further information or a heating oil quote, please don't hesitate to contact us.