As you know, the price you pay for your heating oil in Michigan can change quite a bit from year to year. Why does that happen?
It’s because the market price of oil is always tied to a variety of factors that are constantly changing. If you would like to view a long-term history of residential heating-oil prices in Michigan and see how prices fluctuate, please go here.
As far as the reasons for energy price increases, there are many factors that cause energy prices (crude oil, fuel oil, natural gas, electricity, coal, propane, etc.) to rise and fall. These include:
Global crude oil prices soared to their highest point in eight years after Russia invaded Ukraine in late February. Prior to this, energy prices in all sectors—oil, propane, natural gas and electricity—had been on a steady rise because global oil production hadn’t yet caught up with the pent-up demand that quickly followed the perceived end of the pandemic.
Even before the war in Ukraine further accelerated price increases, frenetic consumer spending–combined with persistent supply shortages–had sent inflation rates in our country to their highest level in 40 years.
The only good news is that this shocking price spike occurred near the end of winter, instead of the beginning. And it’s also important to point out that for the most part, oil prices have remained fairly stable since 2014. You can view a heating oil price update from the U.S Energy Information Administration by going here.
As was noted before, global crude oil production hasn’t yet caught up with pent-up demand. The answer to that problem isn’t to “just drill for more oil at home.” Here’s why.
First, even if the U.S. did drill for enough oil and keep it all here to gobble up for ourselves, that crude oil would still be tightly married to the global oil market—and beholden to whatever the world’s highest bidder is willing to pay for it.
This “solution” is also ignoring the fact that right now, oil companies are feeling enormous pressure to give up fast growth in favor of steadier profits and stock-boosting finance moves, such as higher dividends, more share buybacks, and reduced debt. Read more about this here.
Investors have also been reading the tea leaves, and realize that a zero-carbon emissions world is not too far off in our future. Big money is holding back on fossil fuel investments as legislators try to move the country toward more renewable energy. Investors instead are looking to sink their money into long-term, profitable opportunities in the burgeoning green energy field. By the way, the heating oil industry is making excellent progress with making our fuel more dependent on renewable energy, too. Read about the benefits of Bioheat® fuel.
Another factor influencing oil companies is the memory of the breathtaking fall of crude oil prices during the early days of the pandemic. In the Spring of 2020, crude oil prices fell all the way to negative $30 per barrel! Traders had to pay buyers to take oil! Since then, however, prices have been steadily rising before they exploded in late February after the Russian invasion of Ukraine.
People sometimes misunderstand how negatively higher prices impact local fuel dealers. Heating oil companies don’t make more money when prices rise. Think of it this way: it’s like when the cost of coffee, milk, or orange juice rises. It’s not your local grocery store that is profiting from these higher prices. In the same vein, heating oil customers have a harder time paying their bills. They reduce expenditures. As a consequence, heating oil companies may need to tap into their lines of credit more. Phones light up with questions from customers. So, the sooner energy prices drop, the happier your heating oil company will be. In short, this is an awful mess for everyone.
In the meantime, please reach out your heating oil supplier to find out ways they may be able to help you reduce your energy costs, or handle payments more easily.
Local, independently owned full-service heating oil companies in Michigan work hard to ensure homeowners and businesses in the area get the best prices possible without compromising on quality, safety or environmental concerns. They also ensure that you have the heating and home comfort experience you deserve in several other areas as well, regardless of what’s happening in the market.
We don’t know where things will go from here, but if history is a guide, we can expect to see prices drop pretty significantly in the not-too-distant future. If you would like to read the U.S. Department of Energy’s short-term energy outlook, please go here.
Trust your heating oil supplier to look out for you and let’s hope that—regardless of what happens with global energy prices—we will soon be living in a more peaceful world.