in suffi cient quantities during the winter months. On the other hand, 

if consumer demand is high for a seasonal product, such as gasoline, refi ners may delay producing heating oil for the winter, which 

may lower inventories at the start of the heating season. This was 

the case in September and October 2005, after Hurricanes Katrina 

and Rita shut down Gulf Coast production capacity. As gasoline 

prices shot up over $3.00 per gallon, refi ners had incentive to produce more gasoline at a time when they would normally concentrate 

on heating oil production.

Heating oil is brought into oil storage terminals in an area by refi ners and other suppliers. For example, heating oil may be delivered 

to a central distribution area, such as New York Harbor, where it is 

then redistributed by barge to other consuming areas, such as New 

England. Once heating oil is in the consuming area, it is redistributed by truck to smaller storage tanks closer to a retail dealer’s customers, or directly to residential customers.

How much does a gallon of heating

oil cost?

Heating oil prices paid by consumers are determined by the cost of 

crude oil, the cost to produce the product, the cost to market and 

distribute the product, as well as the profi ts (sometimes losses) of 

refi ners, wholesalers and dealers. In 2006, crude oil accounted for 

60 percent of the cost of a gallon of heating oil. The next largest 

component, distribution and marketing costs, accounted for approximately 24 percent of the cost of a gallon of heating oil. Lastly, 

refi nery processing costs accounted for another 16 percent. (See 

Figure 1.)

Figure 1. Heating Oil Price Components, 2006

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 Introduction

Heating oil is a petroleum product used by 

many Americans to heat their homes. Historically, heating oil prices have fl uctuated from 

year to year and month to month, generally 

being higher duing the winter months when demand is higher. To 

understand the reasons for these price variations, consumers need to 

understand how heating oil is used and how and where it is prduced.

Who uses heating oil?

Of the 107 million households in the United States, approximately 

8.0 million use heating oil as their main heating fuel. Residential 

space heating is the primary use for heating oil, making the demand 

highly seasonal. Most of the heating oil use occurs during October 

through March. The area of the country most reliant on heating oil 

is the Northeast (see box on back panel).

Some customers try to beat rising winter prices by fi lling their storage tanks in the summer or early fall when the prices are likely to be 

lower. However, most homeowners do not have large enough storage tanks to store the full amount needed to meet winter demands. 

Because homeowners may have to refi ll their tanks as often as 4 or 

5 times during the heating season, possible rising or spiking prices 

are a concern.

Where does heating oil come from?

The United States has two sources of heating oil: domestic refi neries

and imports from foreign countries. Refi neries produce heating oil 

as a part of the “distillate fuel oil” product family, which includes 

heating oils and diesel fuel. Distillate products are shipped throughout the United States by pipelines, barges, tankers, trucks and rail 

cars. Most imports of distillate come from Canada, the Virgin Islands, and Venezuela. Refi ners are limited in the amount of heating 

oil they can make to meet the demands of the winter heating season. 

Some winter heating oil is produced by refi neries in the summer 

and fall months and stored for winter use. During the coldest winter 

months, the inventories that are built in summer and fall are used to 

help meet the high demand. Refi ners can increase heating oil production in the winter to a modest degree, but they quickly reach a 

point where, to produce more heating oil, they would also have to 

produce more of other petroleum products which could not be sold 
Why do heating oil prices fluctuate?

Heating oil prices paid by consumers can vary over time and by 

where a consumer lives. Prices can change for a variety of reasons. 

These include:

Seasonality in the demand for heating oil

When crude oil prices are stable, home heating oil prices tend to 

gradually rise in the winter months when demand is highest. However, at times, prices can surge quickly to very high levels (see box 

on “What Causes a Surge in Heating Oil Prices”). A homeowner 

in the Northeast might use 850-1200 gallons of heating oil during 

a typical winter, while consuming very little during the rest of the 

year.

Changes in the cost of crude oil

Since crude oil is a major price component of heating oil, changes 

in the price of crude oil will generally affect the price of heating 

oil. (See Figure 2.) Crude oil prices are determined by worldwide 

supply and demand. Demand can vary worldwide with the economy 

and with weather. Supply can be infl uenced by the Organization of 

Petroleum Exporting Countries (OPEC) and other factors.

Competition in local markets

Competitive differences can be substantial between a locality with 

only one or a few suppliers or dealers versus an area with a large 

number of competitors. Consumers in remote or rural locations may 

face higher prices because there are fewer competitors.

Regional operating costs

Prices also are impacted by higher costs of transporting the product 

to remote locations. In addition, the cost of doing business by dealers can vary substantially depending on the area of the country in 

which the dealer is located. Costs of doing business include wages 

and salaries, benefi ts, equipment, lease/rent, insurance, overhead, 

and state and local fees.

Figure 2. Heating Oil Prices Follow Crude Oil

What can you do to lower your heating 

oil bill?

You can arrange to have your tank fi lled in late summer or early 

fall when prices are generally lower. Talk to your heating oil dealer 

about participating in a budget plan to help stabilize your monthly 

bill. You can also talk to your heating oil dealer about “cap” or fi xed 

price protection programs, which can help keep costs down. You 

can obtain

a home energy audit to ensure that your furnace and appliances 

are running effi ciently before the season begins. You can achieve 

conservation gains by weatherizing your home, i.e., installing the 

proper insulation in your house and around your hot water heater. 

Quick and easy fi xes such as caulking and weather stripping windows and doors to seal out cold air also help save energy. Installing 

a programmable

thermostat and reducing temperature settings on your thermostat, 

especially when you are not at home, are other ways to reduce your 

heating fuel costs.

Lastly, both Federal and State energy assistance programs are available to heating oil customers who have a limited budget. For example, the Low Income Home Energy Assistance Program (LIHEAP) 

is a Federal program that distributes funds to States to help lowincome households pay heating bills. Additional State energy assistance and fuel fund programs may be available to help households 

during a winter emergency. To fi nd out if you qualify for assistance 

in your State, see: www.acf.dhhs.gov/programs/liheap/grantees/index.html#states or contact your local heating oil dealer.

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Heating Oil Is Important to Consumers 

in the Northeast

Of the 8.0 million households in the United States that 

use heating oil to heat their homes, 6.2 million households 

or roughly 78 percent are located in the Northeast region 

of the country. The Northeast region (which includes the 

New England and Central Atlantic States) remains the 

area with an appreciable share of oil-heated single family 

homes. In other regions, older homes have been converted 

from oil heat to gas heat, and oil no longer has a noticeable share of the new home construction market. Thus, 

the seasonal increase in inventories and demand (sales of 

heating oil) is largely confi ned to the Northeast. In 2006, 

4.1 billion gallons of heating oil were sold to residential 

consumers in the Northeast; this is 82 percent of total residential fuel oil sales. (See Figure 3.)

Figure 3. Residential Heating Oil Sales By Region

What Causes a Surge in Heating Oil 

Prices?

Home heating oil prices sometimes can change dramatically in a short period of time. Why does this happen? 

If refi ners, wholesalers, dealers and consumers have 

enough heating oil in storage and temperatures do not 

drop rapidly, prices hold fairly steady (assuming crude 

oil prices are also not changing much). However, a 

rapid change to colder weather can impact both supply 

and demand; people want more fuel at the same time 

that harbors and rivers are frozen or delivery systems 

are interrupted. During this time, the available heating 

oil in storage is used much faster than it can be replenished. Refi neries normally cannot keep up with demand 

during these cold periods. Wholesale buyers become 

concerned that supplies are not adequate to cover shortterm customer demand and bid up prices for available 

product. In the Northeast, for example, additional supplies may have to come from some distance away, such 

as the Gulf Coast or Europe. It costs more to transport 

heating oil from these sources to the Northeast, and it 

also can take two to three weeks to arrive. During the 

time that resupply from distant markets is occurring, 

the supply of heating oil that sellers in the region have 

in storage drops further, buyers’ anxiety about fi nding heating oil in the short term rises, and so do prices 

– sometimes sharply – until new supply arrives.

Additionally, during very cold periods, prices of other 

heating fuels (such as natural gas or kerosene) may increase even more than heating oil prices. In this case, 

some consumers may switch from using their normal 

heating fuel to using heating oil, thereby increasing the 

demand for heating oil.

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Information about heating oil prices...

For the latest update on heating oil demand, prices, 

and inventories, see our “Heating Oil and Propane 

Update” section of the Web site at:

http://tonto.eia.doe.gov/oog/info/hopu/hopu.asp

In addition, our weekly feature This Week in Petroleum contains the most current informationon demand, prices, and inventories of crude oil, gasoline, 

distillate and propane. See

http://tonto.eia.doe.gov/oog/info/twip/twip.asp

The Energy Information Administration is an independent statistical agency within the U.S. Department of Energy whose sole purpose is to provide 

reliable and unbiased energy infromation.

For further information, contact:

National Energy Information Center

Washington, DC 20585

Telephone: 202.586.8800

E-Mail: infoctr@eia.doe.gov

&

EIA’s Web site at:

www.eia.doe.gov