The U.S. Energy Department says households will have to spend 30 percent more on heating oil this year than they did last winter, and do we ever feel it! Unfortunately, there isn't much on the horizon to indicate things will get better any time soon.
If you've gotten a similar bill, you know how helpless it makes one feel.
After all, we've picked all the low-hanging fruit in an effort to conserve the precious fuel. We've insulated. We've installed a new furnace, we've plugged leaks around doors and, most importantly, we've kept our thermostat set at a chilly 62 degrees. Why, at times I felt so cold that the only thing that would keep my stiff fingers warm was keeping them wrapped around a hot mug of tea.
Why does the price of heating oil just go up and up and up?
The answer lies in the increase in demand for fuels as the economy has begun to pull out of the worst recession since the Great Depression. The Energy Department says that in 2010 demand for diesel fuel, which is nearly identical to heating oil, grew by 3.6 percent. That's a pretty hefty increase, and the gain is matched by improvements in consumption in much of the developed world. The Energy Department says to expect more of the same this year.
Where is all that diesel fuel going? For trucking. As business at factories improves, diesel-fueled trucks ship more goods. Increasing consumer confidence means people start buying more goods, and those goods are shipped to stores or from Web sites like Amazon by trucks that burn diesel fuel.
The answer goes back to the chemical similarity between diesel fuel and heating oil. They're really the same product except for differences in the sulfur content. The global price for these fuels is essentially set on futures exchanges in New York and London, and there's no way in those exchanges to differentiate between the diesel fuel used for trucking and the heating oil used for homes.
Prices on the futures exchanges keep going up because the traders and companies buying and selling the fuel are making a guess that as the global economy continues to improve, demand will continue to rise. And that leads to higher prices.
Higher Crude Oil Prices
And finally, the cost of crude oil, from which heating oil is made, is on the upswing. Crude is going up because the expectation is that global demand will rise as economies of developed nations improve and as emerging economies, such as China and India, continue to grow. And now, the unrest in the Middle East is putting further upward pressure on crude oil prices because traders are locking in purchases for fear that supplies from key exporting countries, such as Libya, may be cut off.
We're a Minority
Those of us who use heating oil don't have much say because we're more of a minority than you might think! Only about 8 million, or 7 percent, of the 111 million households in the U.S. use heating oil. The rest heat their homes mostly with either natural gas or electricity. Of those 8 million homes, 80 percent are located in the Northeast, primarily in five states: New York, Massachusetts, Connecticut, Pennsylvania and New Jersey.
Will it get any better? I hate to say it, but maybe not. Global competition for fuels is only going to grow, and the outlook for economic growth in the U.S. is also strong. There's nothing on the horizon that would work to push prices down, so the only way we may be able to fight back is to cut down consumption--turn down that thermostat and turn up the effort to improve the energy efficiency of our houses--or to switch to natural gas.