Q:

Why do home heating oil prices change every year?

A:

Quick Answer

Increased demand worldwide for oil causes a long-term rise in the cost of heating oil, and interruptions during the drilling, refinement or transportation of oil has an effect as well. Temperature fluctuations also cause annual changes.

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Full Answer

Heating oil, which is just as essential as diesel oil, is created from crude oil, which is also used to make petroleum. As a result, growth in China, India and other parts of the developing world has led to automobiles becoming more popular, increasing demand for crude oil. While oil-producing companies have increased their output, they have not caught up with increased demand, which leads to higher prices.

However, regional fluctuations have a greater impact on annual pricing. Various companies along the supply chain have to estimate how much oil they need, and small miscalculations can affect prices considerably. An unusually cold winter, for example, may require extra shipments of heating oil, driving up prices.

The crude oil market is also subject to investment speculation, and major investors' actions can drive prices up or down. The unpredictability inherent to markets can have a dramatic effect on oil prices. Oil can be transported and stored at a relatively low cost. Natural gas pricing, on the other hand, is more stable since it cannot easily be stored for extended periods of time.

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