Why Is Home Heating Oil More Expensive Than Gasoline?

Home-heating oil and gasoline are products produced from crude oil. Gasoline is used far more widely than home-heating oil, which is used mainly in the Northeastern U.S. Gasoline is subject to federal and state taxes, while heating oil is not. So, why is home-heating oil more expensive than gasoline? The answer relates to basic economic issues of supply and demand.

Identification

Heating oil is one of several “middle distillate” oil products. Another middle distillate is diesel fuel. Heating oil and gasoline are separate products and are traded in different markets.

Considerations

According to the U.S. Energy Information Administration, world demand for heating oil has remained high, while the gasoline market has fluctuated more widely. High gasoline surpluses in 2008, for example, lowered prices.

Significance

Refineries, which produce both heating oil and gasoline, have limited capacity. High consumer demand for gasoline, such as in the summer, can postpone production of heating oil.

Effects

Delays in heating-oil production, coupled with costs of transporting it to the Northeast, where most heating oil is consumed, drive up prices.

Example

In summer 2002, refiners responded to high gasoline demand by increasing their production. This lowered heating-oil inventories and raised prices in the winter because of lower supplies.

Geography

Longer, colder winters in the Northeast have increased consumer demand for heating oil, keeping prices high.

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