Why Is Heating Oil More Expensive Than Gasoline?

     I had my book-club partners over for our monthly get-together last week. Although it was cold and windy outside, the sun flooded through the windows of my dining room and warmed our bodies and our spirits. In that toasty, cozy atmosphere, surrounded by good friends, the conversation naturally turned to--the price of heating oil.

     Why, asked Karen, is heating oil more expensive than gasoline? With gasoline prices below $2 a gallon, the retail price of home heating oil in the Northeast is about a dollar more expensive. It doesn't make any sense, Karen said.

     I had to admit I was stumped for a good answer, so I did a little research.

    The first thing I found is that higher heating oil prices in winter reflect a seasonal pattern that takes place nearly every winter. Part of the reason that happens is plain old supply and demand. Hardly any heating oil is used in the summer because, of course, it's warm outside. But come winter, there's a huge increase in demand.

     Heating oil is the fuel of choice for about 7 percent of the 107 million homes in the U.S., according to the Energy Department. That figure jumps to 46 percent of all homes in New England and 25 percent in the Middle Atlantic states. Homes in the Midwest tend to rely more on natural gas for a heating fuel.

     Meanwhile, gasoline use in the winter months is at a seasonal low. The peak period for gasoline consumption is between Memorial Day and Labor Day when Americans use their cars to go on vacations.

     The result is that gasoline prices tend to go down in the winter because consumption is low, and heating oil prices go up because demand is high. The graph above shows that relationship pretty clearly. The U.S. Energy Department, which collected the data, doesn't gather heating oil price information in the summer, and that's why the heating oil line is broken.

Diesel Cars

     The other big reason heating oil is more expensive than gasoline is because the world's demand for diesel fuel is growing faster than for gasoline.  Diesel fuel is essentially the same as heating oil, so the more diesel in use, the more that will be reflected in the price of heating oil.

     While only about 3 percent of U.S. cars burn diesel fuel, that percentage is much higher in Europe and other parts of the world. Diesel fuels about 70 percent of the vehicles in France!

     Diesel is growing in popularity in many countries because engines that burn it are as much as 30 percent more efficient than gasoline-powered ones, lowering the overall cost of the fuel.

     That efficiency will ultimately account for more diesels in the U.S., too. J.D. Power, a market research firm, predicts that diesel-powered cars will rise to 11.5 percent of the vehicle population by 2015.

     All of that means that there's only one way heating oil prices are likely to go over time as diesel fuel powers more of the world's cars, and that's up.

Comments

[Janet]

There's a bigger difference. Diesel fuel for on-road use is required to be extremely low in sulfur to cut down on pollution. Federal regulations have required less than 15 parts per million of sulfur since 2010. Heating oil has a much higher sulfur content--more in the range of 500 parts per million. Extra refining measures are required to produce ultra low sulfur diesel, and this, in part, accounts for its higher cost.

[Mark]

It's amazing how there are only 2 differences between heating oil and road deisel. 1 is the red dye. and 2 is a 60 cent per gallon road tax! And diesel is 2 steps below reg gas in the refining process. There is something rotten in Denmark!

[Girl And Tranny]

well.. it's like I knew!

[CrudeBoy]

Don't forget about the changing diesel specifications. On-road diesel has a much lower sulfur content than it used to, owing to more hydrotreating at the refinery level. So, as refiners have geared up to make the new ULSD for the on-road market, they are making far less of the regular diesel, or home heating oil. The newer ULSD, therefore has worked its way into the home heating market, as well as vehicle fuel market. Since it is mroe expensive to make, the price goes higher.

[CrudeBoy]

Don't forget about the changing diesel specifications. On-road diesel has a much lower sulfur content than it used to, owing to more hydrotreating at the refinery level. So, as refiners have geared up to make the new ULSD for the on-road market, they are making far less of the regular diesel, or home heating oil. The newer ULSD, therefore has worked its way into the home heating market, as well as vehicle fuel market. Since it is mroe expensive to make, the price goes higher.

[CrudeBoy]

Don't forget about the changing diesel specifications. On-road diesel has a much lower sulfur content than it used to, owing to more hydrotreating at the refinery level. So, as refiners have geared up to make the new ULSD for the on-road market, they are making far less of the regular diesel, or home heating oil. The newer ULSD, therefore has worked its way into the home heating market, as well as vehicle fuel market. Since it is mroe expensive to make, the price goes higher.