Learning About Residential Furnaces

Why Are Home Heating Oil Prices Decreasing?

Oil heating went through some rough times in the recent past due to limited oil supplies and high prices. However, because of the ever-decreasing price of home heating oil, you may wish to consider using it for your house. 

Why are home heating oil prices dropping?

The drop in home heating oil prices is due to the worldwide glut in oil reserves. More oil is being produced than is being used, so oil producers must keep their prices low to stay competitive.

There are various factors, both foreign and domestic, that are contributing to dropping oil prices in the United States.

Increased domestic oil production in the United States

Oil production has increased substantially because of technological advances in drilling and extracting oil. Horizontal drilling, which entails drilling at multiple angles from a single vertical well, allows access to oil that may be inaccessible by drilling from directly above the deposit.

Hydraulic fracturing (also known as fracking) involves the use of high pressure water jets and chemicals to extract oil from deposits that lie beneath shale rock formations. Although this technology was primarily being used to release large natural gas reserves trapped under shale, substantial oil deposits were also found and extracted.

Hydraulic fracturing is also allowing formerly active oil wells to come back into production as obstructions to deeper oil deposits are worn away.

Steady or increased production by major international oil producers

In the past, major oil-producing countries would cut oil production in order to stabilize prices when the supply of oil exceeded demand. However, oil production by these countries has remained steady. Many of these major producers have huge cash reserves that will allow them to produce oil at cost or even at a loss.

This strategy places a heavy burden on new oil-producing companies that lack the cash reserves to operate at a loss while oil prices are low and may cause some of them to close their businesses, eliminating the competition for the major producers.

Some major oil-producing countries have restarted their oil production after political instability, economic sanctions, or war. These countries need an influx of cash and are willing to sell at lower prices as they regain their places in the international markets.

International manufacturing cutbacks

As the supply of oil has increased, the manufacturing sector, particularly in Asia, has experienced a drop in demand for their products because of worldwide economic woes. This has led to subsequent drop in demand for oil to power their industrial machines.

A rise in oil production coupled with a drop in demand has been terrible for oil stocks, but great for consumers who made the wise choice to stay with oil heat. For further information, contact a home heating oil provider in your area.