Research and Evaluation: Fuel Oil Prices

Essay by rickr747College, UndergraduateA, May 2006

download word file, 3 pages 3.0

Millions of consumers rely on fuel oil for heating their households. This is primarily in the Northern and Midwest States of America. This is due to the lack of available natural gas production and storage capabilities in those regions. Making it much easier and less expensive for companies to provide this distilled product of crude oil, rather than build and maintain transmission pipelines for natural gas. Additionally, fuel oil is a by-product of refining other hydrocarbon-based products into lubricants rather than gasoline. Therefore, the market for fuel oil has been created by lack of natural gas, which would be a preferred product, and the demand of the consumer to heat their homes. Even if natural gas where available many consumers would not be able to afford to convert their homes to natural gas heating due to the conversion of their heating units.

The price of fuel oil, like any other market commodity, is set by the forces of supply and demand.

This is true for fuel oil as well as the crude oil from which it is made. According to the American Petroleum Institute (API 2004), "the cost of fuel oil has increased recently because bad weather in the Gulf of Mexico and continued instability in some key oil producing regions have restricted production, boosting crude oil prices. Today, a barrel of crude oil sells for more than $54 or $1.30 a gallon. This is about $23 a barrel or 55 cents per gallon more than it was a year ago. Over the same period, the price of residential heating oil increased 52 cents per gallon to $1.90"(para. 2). Crude oil is bought and sold on the international marketplace and is subject to the forces of supply and demand worldwide. We import more than 62 percent of the crude and...