Heating oil prices--stuck in the slow lane?
November 21, 2008 1:47 AM Subscribe
With oil prices down 65% to a three-year low, why are we paying through the nose for heating oil?
As of today, gasoline futures are trading at $1.03 a gallon, and heating oil futures have slid to $1.69 a gallon. Now, these are futures, so it's a given that they trade substantially lower than the retail prices. Also, heating oil trends higher during the high-demand months of winter. So this needs to be factored in as well.
But even so, in the Northeastern US, I'm paying, at today's price, $2.89 per gallon for heating oil. Comparable dealers in my area offer the same pricing.
I recall paying considerably less than $2.89 for heating oil in 2005.
In fact, this Askme post from February 1, 2005 indicated a price of $2.19 for heating oil in the Northwest.
What's propping up the prices? Why aren't they sliding as we've seen with gasoline? What can we expect for the near future?
As of today, gasoline futures are trading at $1.03 a gallon, and heating oil futures have slid to $1.69 a gallon. Now, these are futures, so it's a given that they trade substantially lower than the retail prices. Also, heating oil trends higher during the high-demand months of winter. So this needs to be factored in as well.
But even so, in the Northeastern US, I'm paying, at today's price, $2.89 per gallon for heating oil. Comparable dealers in my area offer the same pricing.
I recall paying considerably less than $2.89 for heating oil in 2005.
In fact, this Askme post from February 1, 2005 indicated a price of $2.19 for heating oil in the Northwest.
What's propping up the prices? Why aren't they sliding as we've seen with gasoline? What can we expect for the near future?
It takes a while for retail prices to reflect futures market prices, to whatever extent they eventually do. In the case of gasoline, I seem to recall the EIA a couple years ago estimated about six weeks. For heating oil, a lower-volume market for a product with longer shelf life, it might take longer. As of six weeks ago, heating oil futures were well above where they were in 2005.
posted by sfenders at 3:52 AM on November 21, 2008
posted by sfenders at 3:52 AM on November 21, 2008
There are a lot of different factors that add up to the cost you pay for oil. Setting aside the current volatility of futures prices themselves, once your dealer purchases the oil he has overhead: Salaries, trucks, office help, marketing costs. On top of that is the profit. Add into the mix local supply and demand, and you have a good idea of what goes into the price.
I don't know about the situation where you live, but a good example of variation in retail oil prices in Maine can be found here. I live in "Greater Portland" and there are dealers offering cash prices of $2.099. Downeast, in Ellsworth prices are up as high as your $2.899, and I'd imagine transportation is a big component in the cost there.
posted by SteveInMaine at 4:03 AM on November 21, 2008
I don't know about the situation where you live, but a good example of variation in retail oil prices in Maine can be found here. I live in "Greater Portland" and there are dealers offering cash prices of $2.099. Downeast, in Ellsworth prices are up as high as your $2.899, and I'd imagine transportation is a big component in the cost there.
posted by SteveInMaine at 4:03 AM on November 21, 2008
Why aren't they sliding as we've seen with gasoline?
Right, then there is the fact that heating oil futures are not down by nearly as much as gasoline. The market in distillates has been much tighter than that for gasoline, or at least this, I think it safe to say, has been the general perception of the market. US distillate stocks down -5.7% on the year, and East Coast seasonal peak levels clearly trending down the past couple years, compared to -1.3% for gasoline and not any trend as obvious. In part this is due to gasoline imports taking some of the pressure off, while refinery utilization is down. Also it is reasonable to expect that heating oil demand, as the heating season gets going, will not fall of by nearly so much as gasoline consumption has lately done.
posted by sfenders at 4:46 AM on November 21, 2008
Right, then there is the fact that heating oil futures are not down by nearly as much as gasoline. The market in distillates has been much tighter than that for gasoline, or at least this, I think it safe to say, has been the general perception of the market. US distillate stocks down -5.7% on the year, and East Coast seasonal peak levels clearly trending down the past couple years, compared to -1.3% for gasoline and not any trend as obvious. In part this is due to gasoline imports taking some of the pressure off, while refinery utilization is down. Also it is reasonable to expect that heating oil demand, as the heating season gets going, will not fall of by nearly so much as gasoline consumption has lately done.
posted by sfenders at 4:46 AM on November 21, 2008
Why aren't they sliding as we've seen with gasoline?
I am in Maine, and the prices have been sliding quite a lot. In the summer, when demand was less, prices were in the range of $4.50 - $4.89/gal. Now, with more demand, they are at $2.05/gal. This is less than I paid in 2006, and I believe at the top of the range for what I paid in 2005.
What was heating oil going for in your area in the summer?
posted by mikepop at 5:59 AM on November 21, 2008
I am in Maine, and the prices have been sliding quite a lot. In the summer, when demand was less, prices were in the range of $4.50 - $4.89/gal. Now, with more demand, they are at $2.05/gal. This is less than I paid in 2006, and I believe at the top of the range for what I paid in 2005.
What was heating oil going for in your area in the summer?
posted by mikepop at 5:59 AM on November 21, 2008
Response by poster: mikepop,
>What was heating oil going for in your area in the summer?
$4.50 to $4.89, just like your area. But gas price increases never rose above $4.20 or so.
Now, the reverse scenario is in effect: heating oil prices are higher than gasoline. The ole switcharoo.
posted by Gordion Knott at 7:46 AM on November 21, 2008
>What was heating oil going for in your area in the summer?
$4.50 to $4.89, just like your area. But gas price increases never rose above $4.20 or so.
Now, the reverse scenario is in effect: heating oil prices are higher than gasoline. The ole switcharoo.
posted by Gordion Knott at 7:46 AM on November 21, 2008
Your heating oil company probably bought the oil over the summer when prices were high. They pass the cost on to you. It's not like petrol where there's a quick turnaround.
posted by Zambrano at 9:20 AM on November 21, 2008
posted by Zambrano at 9:20 AM on November 21, 2008
Heating oil has not gone down as much as gasoline. If you were setting out to systematically screw people you would do the opposite, as much more gasoline is consumed than heating oil.
Two especially weird things are going on now in the heating oil futures markets, one is the relationship between crude oil and its derivative products, gasoline and heating oil, as we are discussing. The second is the flattening out of the seasonal price rise in the futures contracts maturing in the winter. No one really knows why, but some people are blaming exports of heating oil for use as diesel fuel in China.
posted by shothotbot at 7:19 PM on November 21, 2008
Two especially weird things are going on now in the heating oil futures markets, one is the relationship between crude oil and its derivative products, gasoline and heating oil, as we are discussing. The second is the flattening out of the seasonal price rise in the futures contracts maturing in the winter. No one really knows why, but some people are blaming exports of heating oil for use as diesel fuel in China.
posted by shothotbot at 7:19 PM on November 21, 2008
My local NPR affiliate had a great segment discussing what exactly futures contracts are and how the markets work. You can listen to it online or download the MP3.
posted by exhilaration at 8:37 AM on November 23, 2008
posted by exhilaration at 8:37 AM on November 23, 2008
This thread is closed to new comments.
This is not a definitive answer, but if someone purchased futures a long time ago when they were higher than the market price now, they still have to fund the price they paid.. they won't immediately revert to market and lose margin since now they have a ton of oil they bought at a higher price and need to sell.
posted by wackybrit at 3:12 AM on November 21, 2008