The costs of heating homes are highly variable, contingent upon the shifting prices of residential heating oil. Derived from petroleum, the costs fluctuates along with generally fuel inventories, rising in price when the dollar falls (trades are made internationally relative to the US dollar), as well as when oil supplies are relatively scarce. Compounding the households’ challenges in affording winter heating costs, over 8 million households rely primarily upon heating oil to warm their homes. Traditional homes in the Northeast are strongly reliant upon heating oil, leading to varying strategies to counteract shifts in prices.
Many households choose to buy oil in the summer when prices are relatively lower, resulting in savings relative to waiting to purchase heating oil in the winter months. Supplies of heating oil primarily come from imports from Canada and Venezuela, with domestic production in Alaska also adding to inventories. The lack of refining capacity can result in higher relative costs, forcing households to pay high prices even when supplies are relatively abundant.
Recently, the sharp increase in raw crude oil prices reflects the declining value of the dollar and the decisions by the OPEC cartel to reduce oil outputs. The distributing chanels designed to deliver the oil also add to costs, as pipelines and trucks must transport oil to its final destination. Higher seasonal demand, during particularly cost winter months, can result in higher prices based upon a shift in consumers’ demand curves. Variations in cost across markets, regions and deliveries can also lead to higher relative prices, driving up the costs for home energy. As a result, the federal government’s Liheap program and various state programs aim to help households keep ahead of rising energy costs during the winter months.
