Now that fall has arrived and winter is right around the corner, you may be concerned about the rise in heating oil prices. After all, heating oil was probably not in the greatest of demand during the summer – but now that temperatures are dropping, it will be. Fortunately, it’s capital that drives the oil markets and not supply and behind, which is good news for homeowners this fall as oil prices are expected to remain low.
In the beginning of the year, oil prices were steadily increasing. From a period between February and June, the price per barrel of heating oil rose from $26 to $51. They dropped back down to $42 by the end of July. According to the U.S. Energy Information Administration, crude oil should remain around that much towards the end of the year, with heating oil costing consumers around $2.11 a gallon – which is quite low.
The U.S. Energy Information Administration states that 9.4 million barrels of oil were produced per day in 2015 and estimates that by the end of the year, there will have been an average of 8.8 million barrels of oil produced in 2016. Oil production is expected to increase slightly in the next year due to higher drilling activity and rig efficiency.
Supply and demand doesn’t quite work with oil production the way it works with other products. The rig count doesn’t reflect the demand for oil – instead, it actually reflects the capital flow. It’s the capital flow that not only drives the rig count, but the production of the oil and the oil prices as well. When oil prices fall and oil price volatility goes up, everyone wants to buy low and sell high. The rig count goes up with new capital, which causes production to increase and oil prices to fall.
Take for example the cost of oil in the middle of 2014, when oil prices were roughly $100 a barrel. The price per barrel dropped to $90 by October of that year, resulting in oil price volatility to increase. The price per barrel sank to $46 by the beginning of 2015, which meant volatility peaked. At this point, investors began to pour capital into the oil markets. This, in turn, provided an influx in money for the oil companies, which allowed them to start drilling again – and prices quickly went back up to $60 a barrel within only a few months.
As you can see, supply and demand does not dictate the price of oil, which means that just because the temperatures are dropping does not mean that the increased demand will suddenly lead to a price hike. At the moment, the average cost of heating oil in New Jersey is between $1.65 and $1.85 a gallon. For more information regarding the cost of heating oil or for information about our delivery method, be sure to contact us at Woolley Home Solutions today.
"While a number of fleets in New Jersey, including the Department of Transportation, have used biodiesel blends for many years, this pump opening marks the first time biodiesel will be sold directly to consumers in the state. We commend Woolley...Joe Jobe CEO (National Biodiesel Board)