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How are oil prices set?

Heating fuels like oil, natural gas, propane and electricity are traded on the commodities market, which goes up and down like the stock market. By far, the biggest influence on the cost of heating oil is the price of its raw material, crude oil.

What can cause rapid price changes?

 The market responds immediately to any situation that might affect supply or demand, including unexpectedly cold or warm weather, supply interruptions and excess production. These changes are immediately reflected in the wholesale price dealers pay for the oil they deliver to you.

Do local dealers make more profit during sudden price increases?

No. When oil prices rise, it doesn't mean they get a bigger share of it. It's similar to when orange juice prices go up because of an early frost. The local grocery doesn't make the extra money.

So who does make the money?

Anyone ( including the major oil companies, refiners, speculators and others) who was either smart or lucky enough to have secured oil before prices started to rise. However, these same people would've lost money had prices dropped.

Do local dealers wait to deliver until prices are highest?

It's tempting to think that, especially if you've just gotten a high-priced delivery. But remember, your local dealer has no way to predict what will happen to wholesale prices from week to week. Until they can find a better crystal ball, dealers base their deliveries on customer needs and the most efficient truck routes.

How can companies in the same area charge very different prices?

Heating oil is a very competitive business. At any time, you may find people who are priced either higher or lower than your dealer. The difference often depends on: After wholesale prices drop, when do retail prices follow?

It depends on how much oil your local dealer bought and stored at a higher price, and how quickly it sells due to cold weather. It also depends on how much of the original wholesale increase the dealer absorbed to cushion customers when prices went up.