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Home > Oil Gas Investments > Heating Oil > Heating Oil and Its Characteristics
Heating Oil and Its Characteristics
Residential heating oil, also known as #2 fuel oil, is a close relative of kerosene and jet fuel, as it is also a middle distillate. For several years, on-road diesel and heating oil were the same thing. The refined fuel was then equally bought and distributed through gas stations as on-road fuel or via heating oil dealers and distributed as home heating oil. Now, residential heating oil is different from on-road diesel in two aspects: due to the policy implemented in the 1990s by the U.S. Environmental Protection Agency (EPA), diesel used for transportation cannot have a sulfur content of more than 500 parts per million (ppm). However, heating oil was not subject to this mandate, and thus, it contains an average between 2,000 and 2,500 ppm of sulfur. Additionally, all on-road fuels are taxed per unit of volume (gallon) by the federal and state governments to increase income and provide funding for programs such as the Highway Trust Fund. Due to the fact that residential heating oil is not taxed using the same system, it is dyed to have a cranberry red color so it can be easily distinguished from on-road diesel.
The reduction of sulfur content on highway diesel has had a small influence on the sulfur content of heating oil. Voluntary consensus industry standards designated the sulfur limit in heating oil at 5,000 ppm; however, the average stocks tend to be in the range of 2,000 to 2,500 ppm. To some extent, this is due to a “spillover effect” from the refining of transportation diesel. Refineries often produce highway diesel and heating fuel using the same process, and excess transportation fuel formulated for the lower sulfur standards frequently mixes with heating oil, decreasing the sulfur content of the latter. Consequently, the amount of sulfur in the oil depends on where the batch of oil was refined in the process. The heating oil stock that is refined right after transportation diesel has a higher propensity to have much lower sulfur content from one tank to the next. However, for end-users, there is no easy way to determine the sulfur level of the product that they buy.
The price of heating oil is influenced by many factors that involve seasonal demand (prices rise as more consumers use oil to heat their homes in cold winter months), modifications in the cost of crude oil, competition among local heating oil dealers, and regional operating costs (e.g., cost of distribution to remote areas). Heating oil prices are in no way fixed. As a matter of fact, they fluctuate widely according to consumer location, dealer, and season. Nevertheless, marketing and distribution makes up the largest percentage of the cost of heating oil to consumers, usually accounting for 46 % of the retail price.
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