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8 Factors That Affect Fuel Oil Prices

Fuel oil and other petroleum derivatives like diesel and kerosene are among the most in-demand commodities globally. People use them in transportation, heating, factories, cooking, and several other sectors. Since it is such a valuable commodity, fuel oil prices depend on several things. But the global economy is probably the most significant contributing factor. This is why we witness considerable price fluctuations when there are regulations or changes in economic policies around the world.

8 Factors That Affect Fuel Oil Prices

Factors affecting fuel oil prices
Besides the regulations and changes in global economic policies, the following factors influence oil prices significantly:

Demand
Traders in our country look at world oil demand when deciding on fuel oil prices. It has been observed that the prices increase during summer when the demand is high and fall in the winters owing to low demand. Market predictors typically use travel data from the AAA (American Automobile Association) to determine potential gasoline use in summer and weather forecasts during winter. Most global demand estimates are provided monthly.

Current supply
The supply level at any given point also affects fuel oil prices; for instance, when the US shale oil production quintupled to roughly $4.8 million b/d (barrels/day) between 2011 and 2014, it led to an oil glut (excess). As a result, the price of imported crude oil was slashed to $27 b/d in 2016.

Future supply
If traders feel that future oil reserves may get affected by natural disasters, calamities, or other reasons, they revise the prices as a precautionary move. So, the oil prices you saw at the gas station today might change even if there are no changes in demand or supply at the moment. However, if the supply of oil reduces due to disasters and the prices are too high, the strategic reserves can be accessed after fulfilling the criteria in the Energy Policy and Conservation Act of 1975.

Disasters
Both human-made and natural disasters can affect petroleum production, which can, in turn, reflect in the fuel oil prices. The prices may increase depending on the severity of the disaster and the extent to which production is hit. However, you might be surprised to know that oil spills do not significantly impact prices. For instance, 11 million gallons spewed along our country’s coastline had an ecological impact but did not threaten world oil prices. This is because the amount of wastage was far lesser than the reserves.

World crises
This has been one of the major factors affecting fuel oil prices recently. World crises, especially those that affect oil-producing countries, can dramatically increase the rates. Traders act on their instinct that the crises will soon limit supply, increasing demand and prices.

Market trading
Futures and options (F&O) are types of stocks traded in the share market between two parties at a specific price level. In other words, market traders typically buy and sell crude oil in stocks rather than in its physical form. But this trading activity also affects oil prices in the real world. Oil producers and airlines typically use futures and options to hedge against the volatile fuel price of oil, whereas speculators use them hoping for swings in crude oil prices. A reason for volatile prices is also the crude oil consumer’s slow change towards consumption irrespective of the changes in the crude oil price.

Speculation
As mentioned, fuel oil is also traded using futures and options. Traders simply buy and sell based on the current price and projected supply and demand. If the traders speculate oil prices will increase due to the growing global economy, the prices of oil will rise up. As a result, it can lead to high oil prices even when there is plenty of supply at hand.

OPEC
Organization of Petroleum Exporting Countries, or OPEC, is a group of 13 oil-producing countries contributing to nearly 36% of the world’s total crude oil production. These countries allied in 1960 to regulate crude oil prices and its supply because it is a non-renewable energy source. As OPEC increases crude oil prices, it impacts the cost of fuel oil imported for cooking, heating, and transportation.

Although the above factors affect oil and gas prices, the rates are mostly balanced. Political disturbances and supply problems increase and decrease the prices only for a short time. Once the oil reaches regular supply, the rates level out.

How to check fuel oil prices?
Oil prices can be very unpredictable; hence, it is necessary to ensure you get the best price for the day when trading. You can check oil prices with the Energy Information Administration’s spot price report. The Federal Reserve’s chart of oil prices also gives the latest rates. Apart from this, you can simply search “fuel oil prices near me” or “fuel oil prices today” on the internet to check the trend. Investment in this sector has a certain amount of risk, but it has a potential for higher returns on investment.

Although we have discovered various alternative energy sources, carbon-based fuels are still widely used in transportation, manufacturing, and heating, which makes it the world’s economy.

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