Short Term Energy Outlook , the latest report by the U.S. Energy Information Administration outlines the federal government's price and supply predictions for gasoline, natural gas, heating oil and other fuels. Although this prediction is several cents below last winter's average price, special factors can come into play that can dramatically affect heating oil prices temporarily. For example, some large, energy-consuming industries have contractual arrangements with their natural gas suppliers that require them to switch to heating oil during periods of peak natural gas demand, such as prolonged cold weather. This ensures that people who heat their homes with gas have adequate supplies. At the same time, fuel switching tends to raise prices for those who use heating oil because of the added demand from industries.
Weather also can affect prices in another way.
Extremely cold weather not only drives up demand for heating oil from both residential and industrial markets, it threatens the critical supply routes for delivering product to customers. In the Northeast, particularly, a great deal of heating oil is delivered to suppliers by barge. Heating Oil and Propane Update , a Web site by the Energy Information Administration that provides weekly reports on changing heating oil and propane prices. As heating season approaches, refiners are building extra supplies of fuel in preparation for the winter demand. Currently heating oil inventories are larger than at this time last year, but they are still below normal levels.