Heating Oil Price

History has it that the use of heating oil goes back to the 1840s when crude oil was first distilled to manufacture kerosene for lanterns.

 

Quick Overview of Heating Oil

✔️An overview of heating oil
✔️The production of heating oil
✔️Trading heating oil as a commodity
Factors that drive the price of heating oil
The uses of heating oil
Worth knowing

 

An overview of heating oil

It was not until the early 1900s that heating oil started to replace coal as a source of indoor heating. This breakthrough was made possible by the inventor and developer of the oil burner, Milton Ashton Fesler (1874 – 1935), a citizen of the USA.

A part of Fesler’s patent application regarding oil burners, dated 25 November 1902, reads as follows: ‘I, Milton A. Fesler … have invented certain new and useful Improvements in Crude-Oil Burners … My invention relates to the burning of crude petroleum and distillates in cooking and heating stoves and all kinds of furnaces that are not operated in connection with a steam-boiler, and has for its object economy in the use of fuel and labor, the prevention of accidents by fire from the use of crude petroleum and distillates as fuel, freedom from offensive odors, and the cleanliness of the place where fuel is used.’  (Quote obtained from Walter Grutchfield. The accentuations are by the article writer.)

Fesler refined his concept and design for more than a decade. Eventually, the first oil-burner system was installed in 1915 in Boston, the capital city of the Commonwealth of Massachusetts in the USA.

An oil burner is also referred to as an oil boiler.

Simply put, heating oil is a liquid petroleum product that is refined from crude oil. There are two types available, namely:

• one for household (domestic) purposes, referred to as home heating oil (HHO), and
• industrial heating oil (IHO) for industrial, commercial, and agricultural use.

Heating oil is called different names, for instance:

• In the USA and the United Kingdom, it is called heating oil, while in Asian countries, it is referred to as kerosene oil.
• Home heating oil (HHO) is also known as kerosene, kero, 28-second burning oil, domestic heating oil, and commonly called paraffin or lamp oil.
• Industrial heating oil (IHO) is also called gas oil, 35-second oil, red diesel, or commonly diesel.

Heating oil is a popular choice for home and commercial heating because it is clean, efficient, eco-friendly, and affordable. It is also safe to use when proper precautions are put in place.

Furthermore, it is the most important alternative energy source for households that are not able to heat their homes with natural gas.

Differences between kerosene (home heating oil) and gas oil (industrial heating oil):

• Kerosene is more highly refined, allowing it to burn cleaner than gas oil, making it more efficient.
• The lowest temperature at which the vapours of kerosene and gas oil will ignite in air referred to as the flash point also differs. Kerosene has a lower flash point than gas oil due to its higher viscosity and lower density. The flash point of kerosene is approximately 38 degrees Celsius (100 degrees Fahrenheit), and gas oil’s flash point is about 60 degrees Celsius (140 degrees Fahrenheit).
• Its lower viscosity prevents kerosene from ‘gel up’ during winter as gas oil might.
• Both gas oil and kerosene are distilled from crude oil, although between different temperature ranges. Gas oil is distilled between 250° Celsius and 350° Celsius, while kerosene is distilled between 150° Celsius and 275° Celsius.

 

The production of heating oil

Top producers

As mentioned, heating oil is a liquid petroleum product that is refined from crude oil. Put differently, the production of heating oil requires crude oil and a refinery.

This combination makes for interesting reading when the top 10 crude oil producers, the top 10 countries with the largest oil refining capacity, and the top 10 heating oil producers in the world in 2025 are ranked and compared.

Rank	Top 10 crude oil producers		Top 10 oil refining countries		Top 10 heating oil producers
	Country	Production *1	Country	Capacity *2	Country	Production *2
1	USA	18 875 000	USA	18119	USA	4550
2	Saudi Arabia	10 835 000	China	14429	China	3 465
3	Russia	10 778 000	Russia	6356	India	1870
4	Canada	5 558 000	India	4664	Russia	1420
5	China	4 993 000	Japan	3684	Germany	938
6	Iraq	4 149 000	South Korea	3068	Japan	925
7	UAE	3 786 000	Saudi Arabia	2801	South Korea	854
8	Brazil	3 689 000	Brazil	2175	Brazil	830
9	Iran	3 458 000	Germany	2022	Italy	738
10	Kuwait	2 717 000	Canada	1931	Saudi Arabia	641

 

Notes

*1: Indicated as barrels per day (bpd). One barrel of oil contains approximately 42 US gallons. In terms of litres, one barrel of oil contains 158.987 litres.

*2: Thousand barrels per day (bpd).               

 

Remarks

1. The USA is the only country that holds the top position in all three categories.
2. Six of the top 10 crude oil producers – USA, Saudi Arabia, Russia, Canada, China, and Brazil – are among the top 10 oil refining countries.
3. The third category, the top 10 heating oil producers, contains five of the world’s 10 largest crude oil producers, namely the USA, Saudi Arabia, Russia, China, and Brazil.
4. Although the second largest global crude oil producer, Saudi Arabia is only the seventh largest oil refining company and the tenth largest producer of heating oil in the world.

Large consumers of heating oil in the world include the United States (the largest consumer), mainly in the northeast region, Canada, Ireland, and Great Britain, to name a few.

 

The process of making heating oil

Heating oil, like various other products such as diesel, jet fuel, propane, butane, and petrol (gasoline), is produced from crude oil by applying the process of refining in oil refineries.

Heatable, a heating oil delivery company in the state of Maine in the USA, describes crude oil as ‘a liquid mixture of hydrocarbons that remain liquid when brought to the surface.’  Its colour is normally black or dark brown, but it can also appear reddish, yellowish, or greenish, depending on the different colours caused by the various chemical compositions in the crude oil extracted from the earth.

The goal of the refining process is to remove the impurities from the crude oil and separate out the various hydrocarbons in the crude oil through distillation, a method also used to make alcoholic beverages like whiskey, brandy, and rum.

Distillation is the key to the refining process, while the type of distillation used at an oil refinery is referred to as fractional distillation, which can be briefly described as follows:

• Fractional distillation is applied because the boiling points of each of the hydrocarbons in crude oil differ, albeit by less than 70 degrees Celsius.
• The oil refineries heat the crude oil with high-pressure steam to temperatures as high as 600 degrees Celsius to form a vapour which is pumped into a distillation column or tower, referred to as a still, where it separates into various petroleum substances or components, called fractions, with different boiling points and weights.
• The column is filled with trays or plates at different heights. The trays have holes in them, allowing the lighter fractions to move from the bottom to the top off the column.
• The heaviest fractions, naturally containing the highest boiling points, stay or sink to the bottom of the distillation column, while the lighter fractions with lower boiling points move to the top.
• When a fraction reaches the height in the column where the temperature is the same as its boiling point, it is collected by a tray. Typically, petroleum fractions that become heating oil and kerosene are categorised as medium-weight liquids. Hence, they are removed from the middle of the distillation column.

 

Heatable summarises fractional distillation as follows: ‘Through this process of fractional distillation, hydrocarbons are removed from crude oil and become their own pure substances.’

 

However, this is not the end of the process to manufacture heating oil. Heatable indicates the following steps in the production of heating oil, namely chemical processing, removal of impurities, and blending:

 

• Chemical processing

The fractions obtained from the distillation columns are chemically processed in order to make other fractions, also known as substances or components. In chemical processing, one of three processes are applied:

• Cracking, which literally breaks larger fractions into smaller ones.
• Unification combines smaller fractions to produce larger ones.
• The alteration, is a process which rearranges the molecules in a fraction to produce a modified one.

 

• Removal of impurities

Succeeding the chemical processing, the fractions are treated to extract impurities like salts, sulfur, metals, and oxygen.

In countries where regulations determine the use of Ultra Low Sulfur (ULS) heating oil, the oil is also refined to remove sulfur, reducing the sulfur content from 4 000 parts per million (ppm) in conventional oil to 15 ppm in ULS heating oil.

 

• Blending

Lastly, the correct fractions (components/substances) are blended to eventually create products like, inter alia, jet fuel, lubricating oil, and heating oil.

Heating oil is considered the second most important by-product of crude oil after petrol (gasoline).

Noteworthy, in recent years, some suppliers of heating oil have begun to produce heating oil blends of petroleum distillate and biofuels, consisting of approximately 5 percent biofuel by volume.

 

Trading heating oil as a commodity

A trusted and registered commodity broker will enable an investor/trader to trade a commodity like heating oil, allowing competitive spreads, high leverage, and trades anytime anywhere on advanced trading platforms.

A commodity broker will also provide information and advice regarding, inter alia, the following ways to trade heating oil:

• Heating oil futures

Heating oil futures trade on the Chicago Mercantile Exchange (CME). Future contracts trade in units of 42 000 US gallons (1 000 barrels) with a minimum fluctuation of $0.0001 per gallon. The contracts expire on the last business day of the month preceding the delivery month.

 

• Heating oil exchange-traded funds (ETFs)

ETFs are financial instruments that trade in the same way as shares do on stock exchanges.

Currently, the only pure-play heating oil ETF is the United States Diesel-Heating Oil Fund LP.

 

• Shares of publicly traded companies

There are numerous companies involved in the extracting, refining, and selling of crude oil and by-products of crude oil.

The names of such companies and information about their performances can be obtained from a preferred commodity broker.

 

 

Factors that drive the price of heating oil

Similar to most other commodities, the key driver of the price of heating oil is supply and demand in the commodity market. Simply put, when demand exceeds supply, the price increases, and when supply rises above demand, the price decreases.

There are various reasons why the price of heating oil goes up and down, also referred to as fluctuation. For instance:

• The cost of crude oil

The cost of crude oil is a significant component of the price of heating oil. The price of crude oil accounts for almost 60 percent of the cost of heating oil.

 

Factors that influence the price of crude oil are, amongst others:

• A slowdown in the global economy decreases the demand for crude oil, while an upsurge increases the demand for crude oil.
• Political and global events. For example, the Russian war in Ukraine and the sanctions subsequently imposed on Russia by numerous countries have caused a major decrease in the supply of crude oil, pushing the price of crude oil to extremely high levels.
• The control exercised by OPEC (Organisation of the Petroleum Exporting Countries) on oil supply can also affect global crude oil prices.

 

• Weather conditions

The price of heating oil tends to rise during the winter months due to an increase in demand. Furthermore, severe winter conditions can also influence the production and transportation of heating oil.

 

• Regional operating costs

The cost of transporting heating oil to remote areas can affect the prices of heating oil. The further the distance from the supplier, the more expensive it becomes to buy heating oil.

 

• Competition in local markets

The number of heating oil suppliers in a specific area can affect the price of heating oil in a particular region. When a large number of competitors are available in a specific area, users will benefit from lower prices and vice versa.

 

The uses of heating oil

Heating oil is a type of fuel created for use in central heating systems, boilers, water heaters, and furnaces fitted in homes, and large buildings like schools, colleges, factories, warehouses, and other business premises.

Heating oil is usually delivered by road in tank trucks. The storage of heating oil is subjected to storage regulations in force in the particular country in which heating oil is used. The objectives of the regulations are, inter alia, to minimise the risk of pollution and to keep people safe.

Typically, heating oil is stored in above-ground storage tanks (ASTs), located in sheds, garages, or outside adjacent to the building. It is important that the storage tank is placed in an area away from any sources of heat or ignition that could set the heating oil alight. It can also be stored in underground storage tanks (USTs).

The following are some of the reasons why heating oil is considered a popular choice as an alternative fuel source for heating purposes:

• Efficiency

A small quantity of heating oil provides a significant amount of heat, making it an efficient energy source. It is more efficient than electricity, propane, and natural gas.

 

• Availability

Energy sources such as natural gas and propane are either too costly or not available in rural areas which have no connection to national gas lines. Contrarily, heating oil is available because it is delivered by tank trucks.

 

• Comfort

Heating oil burns hotter than other fuels, creating and maintaining a warm and comfortable temperature when the furnace is in use.

 

• Safety

Oil furnaces use a complex system to convert the heating oil into heat, preventing it to explode. Furthermore, it is non-toxic and burns clean, avoiding air pollution.

 

Worth knowing

In the USA, heating oil is dyed red to indicate that it cannot be used in vehicles as diesel fuel. The reason for this requirement is that heating oil is not taxed as a road fuel.

 

Note: This article does not constitute investment, financial, or trading advice. Please obtain the advice of a professional and regulated commodity broker before making trading and investment decisions.