During the winter months, demand for heating oil increases requiring a concomitant rise in production to meet this demand. The most significant component of meeting this demand is the price of crude oil from which heating oil is distilled.
The cost and availability of crude oil, therefore, is the major factor in the price of heating oil.
In this article, we will discuss crude oil production levels of the major oil exporting nations and the impact this could have on how much consumers pay to heat their homes this winter.
The Price Of Crude Oil & Its Impact On Your Local Oil Prices
The price of crude oil is relatively high, at around $70 a barrel and has risen over 20% this year. Uncertainty in global production suggests that it could rise even higher. President Trump has repeatedly called for lower oil prices. Also, the major oil producers (at their most recent meeting in Vienna) have pledged to curb rising prices by increasing their level of production. OPEC and other large oil-producing countries, such as Russia, have committed to increasing the global oil supply by 1% to meet this goal. Oil prices, however, remain high and the reason may be the geopolitical uncertainty that surrounds the major oil producers.
Saudi Arabia has some capacity to increase production and could do so relatively quickly. This may not be enough, however, to offset the decline in production of three other major oil-producing countries that are threatened with a crisis: Venezuela, Iran, and Libya. The Trump administration is taking a hard line with Iran and is likely to implement sanctions against them once again, particularly with regard to oil exports. Iran presently meets about 2% of the world’s oil demand. Were they to cease exporting crude oil, or significantly reduce their exports, this would wipe out any promised increase by OPEC and other oil producers.
While Iran is unlikely to completely halt all oil exports other countries are also facing problems. Venezuela, for instance, is producing less than half the crude oil it usually does because of economic sanctions and its failing economy. It seems likely that this situation will only worsen in the short term with further production declines inevitable. Libya is also facing a crisis with armed groups fighting for control within the country and destabilizing its crude oil output. According to the New York Times:
Venezuela, once a major producer, has nearly halved output, to less than 1.4 million barrels a day, as its economy has cratered and international sanctions have been imposed on the country. Further declines seem almost certain.
Fighting among various armed factions in Libya, meanwhile, has meant that the North African country will not be able to supply around 850,000 barrels a day, most of its output.
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Threats To Production
While there is no major shortage of crude oil yet, the US and world economy are growing. This growth fuels the demand for energy as well. Oil prices are sensitive to any threats to supply, particularly as Russia and the OPEC countries have reduced their stored reserves of crude oil in recent years. There is scope for Saudi Arabia and Russia to increase their crude oil exports. However, it is unlikely that they could replace a major drop in the global supply of crude oil. Whilst analysts agree that there is a significant buffer in global supply, any additional threats to production in Libya, Venezuela or Iran could quickly erode that buffer.
As well as these countries, there are also other geopolitical risks to production. Conflicts in other oil producing countries such as Iraq and Yemen have also taken a toll on oil production. Nigeria is susceptible to production shortages due to the political situation of militant groups in that country.
Politicization Of The Oil Markets
The politicization of the oil markets has also led to significant volatility. The Trump administration has been aggressive in pushing Saudi Arabia to increase production. This may not, however, be enough to counter a significant drop in exports of oil from Iran which they have consistently threatened with sanctions. Some analysts have said that a significant reduction in production in Iran could lead to prices reaching over $100 a barrel (and possibly $150 a barrel or more) in a worst case scenario. The oil markets are extremely sensitive to political pressures such as this. There is no sign that the current US administration intends to soften its approach to Iran. This claim is particularly true with regard to economic sanctions that include oil production.
What This Means For You
The US has made major gains in producing crude oil domestically in recent years. Thus, the US is less reliant on imports. A high crude oil price globally, however, means that products such as heating oil will also rise. While the US has refineries that produce heating oil domestically, it also imports it during the high demand periods. This need for supplemental oil usually occurs in the winter and the US obtains their oil from Canada. While global crude oil prices are the most significant factor in determining heating oil costs, it might also be affected by trade disputes with the US’s nearest neighbor.
Connect With A Reputable Dealer In The Lehigh Valley
Not only do our suppliers offer extraordinary fuel delivery services, they also provide both heating and cooling services. They can ensure that your equipment is able to keep you comfortable even when the weather is unbearable outside.
The fuel delivery companies that we have on board all have an excellent reputation. They provide the best prices, high-quality oil, and an unsurpassable level of knowledge. If you have any questions regarding your HVAC system, fuel costs, or oil delivery options, give us a call or contact us today.
Some of the areas we service include Allentown, Bethlehem, Easton, Whitehall and these zip codes: 18101, 18015, 18042, 18052, as well as all surrounding areas in the Lehigh Valley.