Fuel oil is any liquid petroleum product that is burned in a furnace for the generation of heat or used in an engine for the generation of power, except oils having a flash point of approximately 100 °F (about 40 °C) and oils burned in cotton or wool-wick burners. The oil may be a distillated fraction of crude petroleum, a residuum from refinery operations, or a blend of these.
Heating oil is a petroleum product primarily used in the United States to heat homes. Only 5 percent of households in United States use heating oil as their main heating fuel and the demand is highly seasonal, according to EIA. Most of the heating oil use occurs from October through March, with the Northeastern United States most reliant on heating oil. Historically, heating oil prices have fluctuated from year to year and month to month, generally being higher during the winter months when demand is higher.
The United States has two sources of heating oil: domestic refineries and imports from foreign countries.
Refineries produce heating oil as a part of the "distillate fuel oil" product family, which includes heating oils and diesel fuel. Distillate products are shipped throughout the United States by pipelines, tankers, trucks, and rail cars. Most imports of distillate products come from Canada, the Virgin Islands, and Venezuela.
Refiners are limited in the amount of heating oil they can create to meet the demands of the winter heating season. Some winter heating oil is produced by refineries in the summer and fall months and stored for winter use. During the coldest winter months, the inventories that are built in summer and fall are used to help meet the high demand. Refiners can increase heating oil production in the winter to a modest degree, but they quickly reach a point where, to produce more heating oil, they would also have to produce more of other petroleum products that could not be sold in sufficient quantities during the winter months. On the other hand, if consumer demand is high for a seasonal product, such as gasoline, refiners may delay producing heating oil for the winter, which may lower inventories at the start of the heating season.
Heating oil prices paid by consumers are determined by the cost of crude oil, the cost to produce the product, the cost to market and distribute the product, as well as the profits (sometimes losses) of refiners, wholesalers and dealers. Prices can change for a variety of reasons. These include:
Seasonality in the demand for heating oil: When crude oil prices are stable, home heating oil prices tend to gradually rise in the winter months when demand is highest. However, at times, prices can surge quickly to very high levels.
Changes in the cost of crude oil: Since crude oil is a major price component of heating oil, changes in the price of crude oil will generally affect the price of heating oil.
Competition in local markets: Competitive differences can be substantial between a locality with only one or a few suppliers or dealers versus an area with a large number of competitors. Consumers in remote or rural locations may face higher prices because there are fewer competitors.
Regional operating costs: Prices also are impacted by higher costs of transporting the product to remote locations.
Electricity is generated from fuel oil using technologies that are very similar to those currently used to generate energy from natural gas. Fuel oil is classified into six classes according to its boiling temperature, composition, and purpose. No. 1 fuel oil and No. 2 fuel oil are referred to as distillate fuel oils, while No. 4 fuel oil, No. 5 fuel oil and No. 6 fuel oil are labeled residual fuel oils. No. 6 fuel oil is sometimes referred to as Bunker C. In a more commercial sense: No. 1 fuel oil is kerosene; No. 2 fuel oil is diesel oil; and No. 4, 5 and 6 fuel oils are proper fuel oils.
As a heating fuel, kerosene is used in portable stoves and is sold in some filling stations. It is sometimes used as a back-up, emergency heat source in the United States. Unfortunately, there are deaths that occur annually from inexperienced users mishandling kerosene.
Diesel is produced from petroleum and is sometimes called petrodiesel when there is a need to distinguish it from diesel obtained from other sources. Diesel fuel is very similar to heating oil, which used in central heating. As a hydrocarbon mixture, it is obtained in the fractional distillation of crude oil between 250 °C and 350 °C at atmospheric pressure. Petrodiesel is considered to be a fuel oil and is about 18 percent heavier than gasoline.
Synthetic diesel comes from a variety of sources, including wood, straw, corn, garbage, and sewage-sludge that is dried and gasified. After purification the so-called "Fischer Tropsch process" is used to produce synthetic diesel.
Synthetic diesel may also be produced out of natural gas. Such synthetic diesel has 30 percent less particulate emissions than conventional diesel. Another approach is to use a blend of 95 percent ethanol (typically derived from corn) and 5 percent gasoline in what is termed E95 as a substitute for diesel, similar to the E85 ethanol-based fuel used in flexible-fuel vehicle gasoline engines.