If you have ever wondered why your oil bill constantly fluctuates, you may already know that’s in part due to the relationship between supply and demand. However, what you may not know about are the overseas variables affecting your local supply chain, and in turn the cost to heat your home.
The value of oil is established in a future commodity market by various major, international forces. That market is hinged on decisions made by foreign oil cartels like OPEC who determine the amount you’ll pay to fill up your car or heat your home. Speculation in the market is widely affected by global events, which creates a somewhat predictable, yet sporadic price volatility.
In this blog, we’ll look at some of the variables that affect rising oil prices on a local and global scale.
Why does the price of home heating oil change so much?
Greater Demand
Economics 101 says the price of oil goes up whenever demand outpaces supply. Oil is primarily used for residential heating, so it’s price typically increases seasonally. New Yorkers are all too familiar with this price hike as the largest oil consumers in the United State.
Restricted Supply
Global interconnectivity means that weather events and geopolitics, at home and abroad, affect oil supply. Consider wars, mass wildfires, and health pandemics.
The US has two main sources of heating oil: domestic refineries and foreign imports used to supplement supply and meet winter demand. Most of the US’s imported oil comes from Canada, followed by Mexico and Saudi Arabia.
Your local distributor’s inability to quickly replenish their oil supply in order to keep up with high demand can cause market anxiety; this is the routine mid-winter price hike that you might notice.
International Influences
Approximately 3 billion gallons of heating oil were sold in the American Northeast, accounting for 85% of total domestic sales. As the largest heating oil consumer in the country, New York relies on oil imports during the winter months to supplement an already strained supply. That means New York oil prices are especially vulnerable to natural disasters, conflicts, and geopolitics taking place hundreds, even thousands of miles away.
OPEC is the largest influencer of oil prices on the international stage – it is a cartel composed of 13 oil-rich countries who collectively agree on supply mandates in order to create a favorable market price for oil ; if the price is too low, they will unilaterally cut output to raise its market price. In 2018, OPEC met in Vienna where all members agreed to increase their oil output; a major reason was to force out competition from external oil producers by making them suffer intolerable revenue losses that only OPEC members could sustain.
The discovery of shale oil reserves in the U.S. has disrupted OPEC’s monopoly over the energy market. Competition in the oil market, coupled with political tensions between the U.S. and the Middle East as well as with other OPEC members, has affected the global supply and demand of oil. Even though the U.S. is a major oil producer, it still relies on the foreign producers for supply (6.79 MMb/d in imports, 2018) as well as demand (2.98 MMb/d in exports). Therefore, geopolitics will remain a major influence on your oil bill.
What can you do to help reduce your oil cost with your current system?
Tip 1 – Install proper insulation in your home
By properly insulating your attic, you can save between 10 and 50 percent on your heating bill. Of course, in order to properly do so, you need to assess for air leaks that you’d need to seal. The cheapest and often most effective method is to insulate directly below your attic floorboards.
Tip 2 – Lower the set temperature on your thermostat before going to bed
This is a simple and effective strategy – when you turn down the thermostat, your indoor temperature is lower making your home less prone to heat loss and creating less work for your furnace when it’s turned back up. So the next time you’re hitting the hay, you can sleep soundly knowing that turning down the thermostat is cutting your oil bill.
Tip 3 – Find a more reasonably priced distributor in your area
Check out online price guides to find out more about different oil distributors who deliver in your area.
However, as we previously mentioned residential oil heating has a complex and expensive story spanning from extraction, refinement, and shipment all the way to your local distributor.
The above tips are all about how to best play the game. What if you want to win? You need to look at your options outside of oil.
A cost-effective alternative to oil
Operating a geothermal heating and cooling system is less expensive than operating a combustion-based HVAC system. Why is that?
Let’s first look at the vertically integrated electrical grids within the continental U.S. The three main interconnections (including the Eastern and Western Interconnections as well as the Texas Interconnection) consist of various power flow channels that enable generators to supply electricity to multiple load centers – this prevents any potential disruption to your electrical supply. In addition, each electric system is managed by entities known as balancing authorities.
The purpose of a balancing authority is to ensure a balanced and reliable real-time supply for an expected demand. The Regional Transmission Organizations operate as balancing authorities that oversee their respective multi-state grid. The purpose of an RTO is to establish reliable supply for demand within and across state borders. If an imbalance between real supply and demand of electricity takes place, then blackouts can and will result.
So going back to the question at hand, why is it cheaper to operate a geothermal system when compared to a combustible HVAC system? Historically, the rise in electricity prices has been steadier relative to the price of oil, natural gas or propane which tend to be more volatile. Furthermore, only one-third to one-fourth of the energy a geothermal system delivers is derived from electricity, the rest is transferred from the earth.
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