Forecasts from the U.S. government and private groups are predicting continued strong heating oil prices, but lower this year than last. Many Americans want to understand why they are paying what they are paying. API has assembled this fact sheet to help consumers better understand the components that go into heating oil prices and what steps they can take to lower their own consumption.

Download the API winter fuels fact sheet (.pdf)

Winter Fuel Outlook
Average consumer heating expenditures forecasted to be up this winter
Consumer expenditures for home heating this winter are expected to be slightly higher than last winter. According to the U.S. Energy Information Administration, the average winter heating bill for all fuels is expected to increase 1.4 percent, or by nearly $14, to $1,004. For those households heating with heating oil, prices could be down 13.3 percent, or about $259, to an average expenditure of $1,694. Only 7 percent of U.S. households depend on heating oil for winter fuel and most of these households are in the Northeast, where 31 percent of households use heating oil as their primary space heating fuel. EIA’s forecasts for homes heated with other fuels include an average price drop of 8.1 percent for propane, an increase of 3.6 percent for natural gas, and 9.5 percent for electricity.

Crude Oil
Crude oil prices are the biggest factor affecting heating oil prices
This summer, early buyers of heating oil faced much higher prices than last year in large part because of record-high crude oil prices. Recently, though, crude oil prices have fallen sharply as forecasts for worldwide demand have been trimmed as a result of the economic slowdown. Crude oil is the single largest component of heating oil, so when crude oil costs are higher, heating oil prices are likely to be higher. Conversely, when crude oil prices are lower, heating oil prices are usually lower.

Increased Demand for Diesel
Increased diesel demand has affected heating oil supplies
Heating oil and diesel fuel are closely related products. Both are distillates and are generally made together during the refining process. Only the last steps are different. When demand for on-highway diesel increases, refiners often generate a greater proportion of diesel than heating oil from the distillate stream, and vice versa when heating oil demand increases. Over the past year, until just recently, global highway diesel demand has been much stronger than a year ago, causing much of the distillate yield to go toward diesel. Worldwide diesel demand has been propelled mainly by economic growth, particularly in developing nations, as well as a push in Europe to increase the usage of diesel vehicles. More than half of European cars are fueled by diesel.

Inventories Complicated by Hurricanes
Northeast inventory levels lower than average, output up
In the Northeast, where the vast majority of the nation’s heating oil is consumed, distillate inventories as of October 31, were 17.8 percent below the five-year average, in part because of strong diesel demand and also because of widespread refinery outages in the Gulf Coast region following hurricanes Gustav and Ike. However, over the past five years, the main sources of heating oil supplies from December through February have been imports and refinery production, with inventories only meeting about 3 percent of demand. Through October 31 of this year, U.S. refineries have been producing an all-time record amount of distillate – mostly diesel – to meet demand in America and abroad. For the four weeks ending October 31, U.S. distillate production was the highest ever for the same period. The production of heating oil traditionally ramps up in autumn in expectation of increased, winter-related demand.

Help and Resources
Finding the money to pay heating bills can be difficult for some consumers, particularly lower income Americans. Energy assistance, including help with utility bills or programs to reduce energy usage by improving the energy efficiency of a home, is available for lower-income households through federal programs administered by state offices, and also through private programs. Both home owners and renters are eligible for these programs, which can be found on the Department of Energy’s Web site.

Household Tips
There are a number of no- or low-cost methods Americans can use to save energy during the winter months. Simply reducing the thermostat by 10 to 15 degrees for eight hours a day – while you are out of the house or asleep – will help you save about 10 percent a year on your heating bill. A programmable thermostat can make it easy to set back your temperature. Because your water heater can account for 14 to 25 percent of the energy consumed in your home, consider turning down the temperature of your water heater to the warm setting of 120 degrees. Also consider having an energy audit of your home to determine if there are ways you can easily reduce your home-heating consumption.

Other Ideas:

• Cover drafty windows with heavy-duty clear plastic film
• Install tight-fitting, insulated drapes or shades
• Take advantage of the heat from the sun by opening curtains on south-facing windows during the day
• Find and seal air leaks
• Stop cold air from coming down the flue of your fireplace by keeping the damper closed unless a fire is going
• Consider replacing appliances and heating and cooling equipment with more energy efficient (Energy Star) models.
• Schedule regular maintenance of your heating/cooling system, including replacing your furnace filter regularly
• Insulate your water tank to hold the heat inside