Heating oil, or oil heat, is a low viscosity, liquid petroleum product used as a fuel for furnaces or boilers in buildings. Home heating oil is often abbreviated as HO.
Heating oil is commonly delivered by tank truck to residential, commercial and municipal buildings and stored in above-ground storage tanks ("ASTs") located in the basements, garages, or outside adjacent to the building. It is sometimes stored in underground storage tanks (or "USTs") but less often than ASTs. ASTs are used for smaller installations due to the lower cost factor. Heating oil is less commonly used as an industrial fuel or for power generation.
Red dyes are usually added, resulting in its "red diesel" name in countries like the United Kingdom. Solvent Yellow 124 is added as a "Euromarker" since 2002 in European Union.
Heating oil is very similar to diesel fuel, and both are classified as distillates. It consists of a mixture of petroleum-derived hydrocarbons in the 14 to 20-carbon atom range. During oil distillation, it condenses at between 250 and 350 °C (482 and 662 °F). Heating oil condenses at a lower temperature than the heavy (C20+) hydrocarbons such as petroleum jelly, bitumen, candle wax, and lubricating oil, which condense between 340–400 °C (644–752 °F). But it condenses at a higher temperature than kerosene, which condenses between 160–250 °C (320–482 °F).
Heating oil accounts for about 25% of the yield of a barrel of crude oil, the second largest "cut" after gasoline (petrol). Options on futures, calendar spread options contracts, crack spread options contracts, and average price options contracts give market participants even greater flexibility in managing price risk.
Heating oil futures are traded on almost all commodity exchanges around the world. These contracts have delivery dates in all 12 months of the year and are used to hedge diesel fuel and jet fuel, both of which trade in the cash market at an often stable premium.
The degree day system is based on the amount of fuel a customer has consumed between two or more deliveries and the high and low outdoor temperatures during the same period. A degree day is defined as one degree of temperature below 65 °F in the average temperature of one day. In other words, to arrive at the number of degree days in one day, the official high and low temperatures for that day must be obtained. The two figures are then averaged, and the number of units this average is below 65 °F is the number of degree days for that day. For example, if for Tuesday, November 3, the high temperature is 70 °F and the low is 54 °F, the average is found by adding 70 and 54, which equals 124, and then dividing by 2. The resultant figure is 62, and by subtracting 62 from 65, it is determined that there were three Fahrenheit degree days that day.
The K factor is the number of degree days in any given period divided by the number of gallons of fuel oil used in a given period. Multiplying K degree-days per gallon by the number of gallon of usable fuel remaining in a tank gives the number of degree-days before a delivery is needed.