Oil-powered hot water heaters are less efficient than their gas-powered equivalents and, by some measures, electrical hot water heaters. However, the gap in efficiency between oil and gas can be small, and electrical heaters are typically more expensive to operate.
Natural gas is most often used to heat water, as of 2015, and the significantly lower cost of natural gas makes them more efficient to operate. However, upgrading to a new system can be expensive, leading many with oil-burning systems to avoid making the investment. In addition, people living in remote regions may find the cost of transporting natural gas or propane higher than transporting oil. Large oil tanks allow homeowners to store more energy in oil than propane tanks would allow.
While electrical water heaters technically provide the most efficient ratings, these ratings do not account for the loss incurred when heat generated from fossil fuels is converted into electricity at the power plant, which can be substantial. This inefficiency also drives up the cost of using electricity for heating, making it the main reason why electrical heaters cost more to run. However, those living in areas where expensive furnaces and boilers are generally not needed prefer the small design, simple operation and low investment requirements of electrical heaters.