While you could buy your oil early to avoid the spike in price, heating your home for a whole winter with home heating oil takes a lot of oil, and most people do not have tanks large enough to hold all that they will need. A homeowner in the Northeast might use 650-1000 gallons of home heating oil during a typical winter.

Where does home heating oil come from? The United States has two sources of heating oil: domestic refineries and imports from foreign countries.

Refiners are limited in the amount of heating oil they can make. They often must produce home heating oil in the summer months, and store it to meet the demands of the winter heating season. While it is possible for refiners to increase heating oil production in the winter, it can only be done to a modest degree because they reach a point where to produce more heating oil they would also have to produce more of other petroleum products. This is not a viable option because they would be making more of the other products than they can really sell during the winter months.

How much does a gallon of home heating oil cost? The price is 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 or losses of refiners, wholesalers and dealers. Distribution and marketing costs accounted for 46 percent of the cost of a gallon and crude oil accounts for approximately 42 percent of the cost, and refinery processing costs account for another 12 percent.

So why do prices of home heating oil vary? Well the following are some of the reasons.
The number one reason is the seasonality in the demand for home heating oil. When crude oil prices are stable, home heating oil prices tend to gradually rise in the winter months when demand is highest.

Second is that prices of all oils change due to 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.

Third is the competition in local markets. You may be able to get home heating oil at a significant cost reduction in areas with more suppliers or dealers because of the competition. A place with only one or two suppliers will have higher prices than an area with a large number of competitors.

Next is a two edge sword, because oil prices go up, transportation prices go up, which means depending on where you are located, your price could be significantly impacted by the higher costs of transporting the product to remote locations.

So with some many variables, what can you do to lower your home heating oil bill?
Fill your tank in late summer or early fall when prices are generally lower.

Talk to your heating oil dealer about "cap" or fixed price protection programs, which can help keep costs down.
Get a home energy audit to ensure that your furnace and appliances are running efficiently.

Lastly, both Federal and State energy assistance programs are available to heating oil customers who have a limited budget.