Al Soucy wonders why his home-heating oil bills aren’t dropping like the prices at the gas pumps or for barrels of crude oil.
“Why is that price not being passed on to the customer?” said the Grantham resident. “It just makes me very curious.”
Don’t blame the delivery companies, according to Bob Sculley, executive director of the Energy Marketers Association of New Hampshire, which represents oil dealers.
“Market forces are driving what the end costs are going to be,” Sculley said. “They are not increasing their price per gallon because the price of fuel is down.”
Home-heating oil was selling for an average of $3.10 a gallon in New Hampshire as of last Tuesday for those buying on credit, according to the state Office of Strategic Initiatives, which tracks energy prices.
That price was 11 cents, or nearly 4 percent, higher than a year ago.
Gasoline prices, meanwhile, were 11 cents cheaper than a year ago. And the price of Brent crude oil is around 13 percent lower than a year ago.
“What this (heating oil) price is, is a reflection of supply-demand dynamics going on in New Hampshire, not necessarily reflective of the overall crude market,” said Mason Hamilton, a senior petroleum markets analyst at the U.S. Energy Information Administration.
Last October, the EIA had predicted a 20 percent rise in heating oil prices this winter (Oct. 1-March 31) compared to last winter. The price of Brent crude peaked at $86 a barrel in October.
In November, the EIA trimmed its forecast price hike to 14 percent as crude prices had decreased. Crude dropped further to $50.47 a barrel on Christmas Eve before climbing back past $60.
Lower crude prices are more easily reflected in gasoline prices, Hamilton said.
“The primary component of the price of something like gasoline or diesel is the price of crude oil,” he said. “You tack on the cost to refine it” and store it and transport it along with taxes.
“When the price of oil falls, it takes about two weeks for 80 percent of that price drop to pass through to retail gasoline stations,” Hamilton said.
Competing gas station owners may not be as quick to drive down the cost, he said.
Sean Cota, who heads the New England Fuel Institute, an industry association, said home-heating oil is bought at different times and prices, which tend to be higher during the higher-demand months of winter.
“The product that is here is built up from the summertime through now to make sure in cold weather we have the product for the consumer,” Cota said. “So that product is going to be partially priced off from the new supply mixed in with the old supply we have in storage.”
“(Say) you make extra chocolates before Valentine’s Day. If the price of chocolate plummets a few days before, you already made the chocolates,” Cota said “After Valentine’s Day is gone, those chocolates get cheaper, and that’s when retailers will sell it at a loss.”
Sculley said New Hampshire oil dealers buy about 50 percent of their oil between mid-December and mid-February.
Cota said “Wall Street makes all the money; the retailer does not” on making market bets on crude prices.
John Rymes, co-owner of Rymes Propane & Oil, said he tries to offer the cheapest prices he can.
“The heating oil companies like us or the other ones around, we’re just glorified trucking companies,” Rymes said. “We buy it from someone else and bring it to the end user.”
“Sometimes, we make a little bit more (profit), and sometimes we make a little bit less,” he said.
Rymes said gasoline and heating oil are “completely different products, so they’re traded differently.”
And, like Soucy asking why heating oil prices aren’t dropping like gas prices, Rymes said, “We sometimes ask that very same question.”